497 1 ahit-497_082117.htm DEFINITIVE MATERIALS

AFL-CIO HOUSING INVESTMENT TRUST

Portfolio Performance Commentary:

July 2017

For the month of July 2017, the AFL-CIO Housing Investment Trust (HIT) had a gross return of 0.32% and a net return of 0.29%. Its benchmark, the Bloomberg Barclays U.S. Aggregate Bond Index (Barclays Aggregate), reported a return of 0.43% for the month.

July gross relative performance: -0.11%

Performance for periods ended July 31, 2017

(Returns for periods exceeding one year are annualized)

        YTD   1 Year   3 Year   5 Year   10 Year  
  HIT Total Gross Rate of Return     2.68%   -0.04%   3.02%   2.36%   4.85%  
  HIT Total Net Rate of Return     2.43%   -0.43%   2.59%   1.93%   4.40%  
  Barclays Capital Aggregate Bond Index     2.71%   -0.51%   2.71%   2.02%   4.44%  
The performance data quoted represents past performance and is no guarantee of future results.  Investment results and principal value will fluctuate so that units in the HIT, when redeemed, may be worth more or less than their original cost.  The HIT's current performance may be lower or higher than the performance quoted. Performance data current to the most recent month-end is available from the HIT's website at www.aflcio-hit.com. Gross performance figures do not reflect the deduction of HIT expenses.  Net performance figures reflect the deduction of HIT expenses and are the performance figures investors experience in the HIT.  Information about HIT expenses can be found on page 1 of the HIT’s current prospectus.

Positive contributions to the HIT’s performance relative to the Barclays Aggregate included:

  • The portfolio’s ongoing yield advantage over the Barclays Aggregate.
  • Performance by agency multifamily mortgage-backed securities (MBS) in the HIT’s portfolio as spreads to Treasuries were mixed for FHA/Ginnie Mae loan certificates and tightened for Fannie Mae DUS securities. Ginnie Mae construction/permanent loan certificates contracted by approximately 2 basis points (bps) and permanent loan certificates widened by 2 bps. The benchmark Fannie Mae 10/9.5 DUS structure contracted by 1 bp. The HIT had 25.5% of its portfolio invested in single-asset DUS securities of various structures at the end of July while there were no such securities in the Barclays Aggregate.
  • The portfolio’s overweight to spread-based assets as swap spreads tightened across most of the curve. Five-, 7-, and 10-year spreads narrowed by 0.5, 2, and 2 bps, respectively, while 2-year spreads widened by about 1 bp. At the end of the month, 90.9% of the HIT’s portfolio was invested in spread assets (9.1% in cash equivalents and Treasuries) compared to 63.0% spread assets in the Barclays Aggregate (37.0% in Treasuries).

Negative impacts to the HIT’s performance included:

  • Performance by corporate bonds, the best performing major sector in the Barclays Aggregate, posting an excess return of 60 bps. The HIT does not invest in corporate bonds, whereas the sector comprised 25.4% of the index as of July 31, 2017.
  • Performance by agency fixed-rate single family mortgage-backed securities (RMBS), the second best performing major sector in the index with excess returns of 24 bps. The HIT was
 1
 
AFL-CIO HOUSING INVESTMENT TRUST July 2017 Performance Commentary

 

underweight to this sector with an 18.3% allocation versus 28.1% in the Barclays Aggregate as of July 31.

  • The portfolio’s overweight to the highest credit quality sector of the investment grade universe, whose excess returns were the lowest among the four credit ratings buckets (AAA, AA, A, and BBB) of the Barclays Aggregate. Those returns were 11, 36, 56, and 76 bps, respectively. Over 96% of the HIT portfolio had a rating of AAA or carried a government or government-sponsored enterprise guarantee, compared to less than 72% for the Barclays Aggregate at the end of July.

July 2017 Bond Sector Performance

Sector Absolute Return Excess Return (bps) Modified Adjusted Duration
U.S. Treasuries 0.17%   0 6.16
Agencies 0.50% 28 4.36
Single family agency MBS (RMBS) 0.45% 24 4.66
Corporates 0.73% 60 7.52
Commercial MBS (CMBS) 0.62% 26 5.43
Asset-backed securities (ABS) 0.27%   5 2.26

Source: Bloomberg L.P.

Change in Treasury Yields

Maturity 6/30/17 07/31/17 Change
1 Month 0.837% 0.979%  0.142%
3 Month 1.011% 1.072%  0.061%
6 Month 1.132% 1.132%  0.000%
1 Year 1.228% 1.212% -0.016%
2 Year 1.382% 1.349% -0.033%
3 Year 1.546% 1.508% -0.038%
5 Year 1.888% 1.836% -0.053%
7 Year 2.140% 2.113% -0.027%
10 Year 2.304% 2.294% -0.009%
30 Year 2.835% 2.900%  0.065%
Source: Bloomberg L.P.

 

Investors should consider the HIT's investment objectives, risks, and charges and expenses carefully before investing. This and other information is contained in the HIT's prospectus. To obtain a prospectus, call the HIT at 202-331-8055 or visit www.aflcio-hit.com. The prospectus should be read carefully before investing. The Barclays Aggregate is an unmanaged index and is not available for direct investment, although certain funds attempt to replicate this index. Returns for the Barclays Aggregate would be lower if they reflected the actual trading costs or expenses associated with management of an actual portfolio.

This document contains forecasts, estimates, opinions, and/or other information that is subjective. It should not be considered as investment advice or a recommendation of any kind. The calculations of the HIT yield herein represent widely accepted portfolio characteristics information based on coupon rate, current price and, for yield to worst, certain prepayment assumptions, and are not current yield or other performance data as defined by the SEC in Rule 482.

 

 2
 
AFL-CIO HOUSING INVESTMENT TRUST July 2017 Performance Commentary

 

Portfolio Data as of July 31, 2017

 

Net Assets $6,090,629,757
Portfolio Effective Duration 5.379 years
Portfolio Average Coupon 3.21%
Portfolio Current Yield1 3.20%
Portfolio Yield to Worst 2.70%
Convexity 0.078
Maturity 9.416 years
Average Price 102.65
Number of Holdings 990

 

 

Portfolio Percentage in Each of the Following Categories: 2

Agency Single-Family MBS 22.59%
CMBS – Agency Multifamily* 62.67%
U.S. Treasury Notes/Bonds   4.51%
State Housing Permanent Bonds   4.88%
State Housing Construction Bonds 0.60%
Direct Construction Loan 0.14%
Cash & Short-Term Securities  4.62%

* Includes multifamily MBS (54.71%), multifamily Construction MBS (6.00%), and AAA Private-Label CMBS (1.96%).

 

 

Portfolio Duration Distribution, by Percentage in Each Category: 2

Cash 4.62%  
0-0.99 years 7.62%  
1-2.99 years 12.27%  
3-3.99 years 15.40%  
4-5.99 years 19.98%  
6-7.99 years 22.82%  
8-9.99 years 12.72%  
10-14.99 years 1.92%  
15-19.99 years 2.22%  
Over 20 years 0.45%  

 

_________________________

1 The calculations of the HIT yield herein represent widely accepted portfolio characteristics information based on coupon rate, current price and, for yield to worst, certain prepayment assumptions, and are not current yield or other performance data as defined by the SEC in Rule 482.

2 Percentages weighted by unfunded construction-related security purchase commitments.

 

 3
 
AFL-CIO HOUSING INVESTMENT TRUST July 2017 Performance Commentary

 

Portfolio Data (continued)

 

Maturity Distribution (based on average life):

  0 – 1 year 5.99%
  1 – 2.99 years 9.21%
  3 – 4.99 years 25.05%
  5 – 6.99 years 20.72%
  7 – 9.99 years 27.44%
10 – 19.99 years 8.03%
Greater than 20 years 3.57%

 

 

Quality Distribution: 3

U.S. Government or Agency 89.20%
AAA 2.50%
AA 3.54%
A 0.00%
Not Rated 0.14%
Cash 4.62%

 

 

 

 

 

 

 

 

 

_________________________

3 Percentages weighted by unfunded construction-related security purchase commitments.

 

 

 4