HomeMy WebLinkAbout2012 02 13 Informational 103 1st Quarter Investment ReportCOMMISSION AGENDA
ITEM 103
February 13, 2012
Regular Meeting
REQUEST:
Informational X
Consent
Public Hearings
Regular
KS
City Manager
m
Department
The City Manager and the Finance and Administrative Services Department
providing the Investment Report for the first quarter of fiscal year 2012 (quarter
ending December 31, 2011) as prepared by PFM Asset Management LLC.
SYNOPSIS:
Distribution of the investment report for the first quarter of the 2012 fiscal year (quarter -
ending December 31, 2011).
CONSIDERATIONS:
The General City Account portfolio is of high credit quality and maintains adequate
liquidity. The portfolio is invested entirely in Federal Agency, U.S. Treasury and
commercial paper securities. The securities are allocated among high quality issuers rated
AA+ and A -1 +. PFM's attached report provides additional information regarding the City's
investment position at December 31, 2011.
FISCAL IMPACT:
The weighted average yield at December 31, 2011 is .35 %. The weighted average yield at
September 30, 2011 was 0.42 %. This portfolio has an average maturity of less than one
year.
COMMUNICATION EFFORTS:
This Agenda Item has been electronically forwarded to the Mayor and City Commission,
City Manager, City Attorney /Staff, and is available on the City's Website, LaserFiche, and
Informational 103 PAGE 1 OF 2 - February 13, 2012
the City's Server. Additionally, portions of this Agenda Item are typed verbatim on the
respective Meeting Agenda which has also been electronically forwarded to the individuals
noted above, and which is also available on the City's Website, LaserFiche, and the City's
Server; has been sent to applicable City Staff, Media/Press Representatives who have
requested Agendas /Agenda Item information, Homeowner's Associations /Representatives
on file with the City, and all individuals who have requested such information. This
information has also been posted outside City Hall, posted inside City Hall with additional
copies available for the General Public, and posted at five (5) different locations around the
City. Furthermore, this information is also available to any individual requestors. City Staff
is always willing to discuss this Agenda Item or any Agenda Item with any interested
individuals.
Additionally, the investment report will be placed on the City's website within one week of
acceptance in the section titled Budgets and Financial Documents.
RECOMMENDATION:
Staff requests the City Commission receive and review the information provided in this
Agenda Item.
ATTACHMENTS:
Investment Report for quarter- ending December 31, 2011
Informational 103 PAGE 2 OF 2 - February 13, 2012
City of Winter Springs
Investment Performance Review
Quarter Ended December 31, 2011
Investment Advisors
Steven Alexander, CTP, CGFO, Managing Director
David Jang, CTP, Senior Managing Consultant
Gregg Manjerovic, CFA, Portfolio Manager
Rebecca Dole, CTP, Consultant
Jan Anguel, Consultant
PFM Asset Management LLC
300 S. Orange Avenue, Suite 1170 One Keystone Plaza, Suite 300
Orlando, FL 32801 North Front & Market Streets
(407) 648 -2208 Harrisburg, PA 17101 -2044
(407) 648 -1323 fax 717 - 232 -2723
717- 233 -6073 fax
City of Winter Springs Investment Report - Quarter Ended December 31, 2011
Table of Contents
Tab 1.
Section A Market Review
rf191W
Section B Executive Summary and General City Account Portfolio Performance
Section C Asset Allocation Chart
Tab III. December 31, 2011 PFM Month -End Statement
(statements are available online at www.pfm.com)
This material is based on information obtained from sources generally believed to be reliable and available to the public,
however PFM Asset Management LLC cannot guarantee its accuracy, completeness or suitability. This material is for
general information purposes only and is not intended to provide specific advice or recommendation. The information
contained in this report is not an offer to purchase or sell any securities.
Table of Contents Section i
City of Winter Springs Investment Report - Quarter Ended December 31, 2011
TAB I
City of Winter Springs Investment Report — Quarter Ended December 31, 2011
Summary
• Quarterly returns for fixed income were positive but failed to beat
returns on domestic equities.
• For the quarter, short- to intermediate- duration portfolios with
diversified fixed- income holdings outpaced money market accounts
that avoided European exposure, including Libor -based time
deposits.
• PFM strives to maintain the safety of principal while at the same time
positioning for growth and searching for tactical opportunities to
enhance return.
Economic News
Growth in the U.S. has improved while the uncertainty surrounding
Europe continues. Gross domestic product (GDP) in the U.S. has shown
steady increases over the first three quarters of 2011, coming in at 0.4 %,
1.3% and 1.8 %, respectively. Most projections for fourth - quarter GDP
growth are near 3 %. Although much of the economic expansion can be
attributed to the release of pent -up demand for autos and a restocking of
inventories by businesses, positive signals have emerged, showing more
stabilization and a fundamental strengthening of the domestic economic
recovery.
While signs of tentative recovery are now occurring in the housing
market, there is still a significant amount of foreclosures in the pipeline,
suggesting a higher inventory of unoccupied houses. A massive
downward revision to earlier existing -home sales data showed that the
housing market suffered a larger loss than many previously thought. Sales
from 2007 onward have had significant downward revisions of 14% on
average. Recently, though, there have been positive trends in home sales,
with the October - November average annual rate of home sales up 20%
from the third quarter. In November, existing -home sales rose 4.0 %,
significantly above the consensus of 2.2 %, while new -home sales rose by
1.6% and housing starts increased by 9.3 %.
Indicators are showing improvement in labor market conditions, but
there is still much that needs to be resolved in this arena as well. The
unemployment rate fell to a 2 low of 8.5% in December; however,
much of this outcome has to do with the fact that the labor force
participation rate has reached a two -year low. Market participants
continue to wait for the abatement of excess slack in the labor market.
Results for the Conference Board's Consumer Confidence Survey
reflected an increase in positive sentiment, with the number of
respondents reporting that jobs are currently "hard to get" falling to
41.8 %, the lowest level of the recovery. This development, along with
other strong economic releases in the fourth quarter, led to robust
quarterly performance for U.S. equities. The S &P 500 Index increased
11.8% in the fourth quarter, erasing the losses in the previous two
quarters.
U.S. Treasury Yields — Quarter and Year - over -Year Changes
Date
3-month
1-year
2-year
5-ye ar
i
i
31- Dec -11
0.01%
0.10%
0.24%
0.83%
1.88%
2.89%
30- Sep-11
0.02%
0.10%
0.24%
0.95%
1.92%
2.91%
Change over Quarter
-0.01%
0.00%
0.00%
-0.12%
-0.04%
-0.02%
31- Dec -10
0.12%
0.26 0 ,/0
0.59 0 ,/0
2.01%
3.29%
4.33 0, ,
Change over Year
-0.1 l
- 0.16%
-0.35%
-1.18%
-1.41%
-1.44%
Source data: Bloomberg
City of Winter Springs Investment Report — Quarter Ended December 31, 2011
Interest Rates
U.S. Treasuries fluctuated within a narrow range, finishing the quarter
close to where they began. Short -term rates remained near zero due to
the Federal Reserve's ( Fed's) continued commitment to keep the target
rate between zero and 0.25% until at least mid 2013. Meanwhile,
intermediate- and long -term rates have stabilized due to the offsetting
forces of positive economic data in the U.S., a flight -to- quality reaction to
the European debt crisis and the Fed's Operation Twist program, where
the U.S. central bank purchases longer -dated securities while selling
shorter -dated securities in an effort to keep longer -term interest rates
down.
2 -Year, 5 -Year, and 10 -Year U.S. Treasury Note Yields
December 31 2010 through December 31, 2011
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0% +_
Dec 10
Feb 11 Apr 11 Jun 11 Aug 11 Oct 11 Dec 11
2 -Year TSY 5 -Year TSY 10 -Year TSY
Source: Bloomberg
Bond Markets
Although signs point towards a stronger economy in the U.S., continued
uncertainty in the global economic outlook has resulted in investors
becoming more cautious and gravitating towards securities that are
perceived to be less risky. Assets have flowed out of prime money market
funds into government funds on concerns of the funds' potential
exposure to the sovereign debt of struggling European nations.
Treasuries have benefitted from this need for safety, posting positive
performance for the quarter. Treasury yields are still hovering around
their record lows. agency spreads widened during the fourth quarter,
while corporate spreads tightened. Both sectors offered value for
investors.
Total Returns of Various Asset Classes
Quarter ended December 31, 2091
15.0%
11.s�0
10.o%
5.0% 2.1 °io 3.4 °0 2.5% °
0
n 0.6% 0.4%
0.0%
-5.0%
-10.0%
-11.7%
2.4% "
01% 0
• Quarterly Return
• Annual Return
-15.0% '
S &P500 Index
MSCI
1 -5 Year 1 -5 Year
1 -5 Year Citigroup
Total Return
EAFE
A -AAA Treasury
Federal Euro
(Domestic
Total Return
Corporate Index
Agency Bond Index
Equity)
(International
Index
Index
Equity)
Sources: Bank ofAmerica Merrill Lynch, Citigroup, Bloomberg
The views expressed within this material constitute the perspective and judgment of PFM Asset Management LLC (PF1\1A I) at the time of distribution and are subject to change.
Information is obtained from sources generally believed to be reliable and available to the public; however, PF1\LAAI cannot guarantee its accuracy, completeness or suitability. This
material is for general information purposes only and is not intended to provide specific advice or recommendation. The information contained in this report is not an offer to
purchase or sell any securities.
City of Winter Springs Investment Report - Quarter Ended December 31, 2011
TAB II
C o f W in te r Sp ring s Investment Report - Quarter Ended December 31, 2011
Executive Summary
PORTFOLIO STRATEGY
➢ The City's General City Account Portfolio is of high credit quality and invested in U.S. Treasury, Federal Agency, and commercial
paper securities.
➢ Relative -value trading provided another way for PFM to enhance the portfolio's yield. We identified an opportunity this quarter to
add yield by selling a relatively rich treasury issue and buying similar maturity issue trading relatively cheaper. This can occur for a
variety of reasons including supply /demand factors, the need for dealers to adjust their inventory, or new issue concessions. The
portfolio realized over $4,000 in gains on sales, as a result of active management during the quarter.
➢ During the fourth quarter, we continued to favor barbelled structures using longer -dated agencies combined with shorter -dated high
quality commercial paper securities. In this way, we were able to capture the higher yields and roll -down of longer agencies, plus
significant extra yield from shorter commercial paper.
➢ The General City Account Portfolio continues to provide the City with favorable yield relative to the benchmark. At quarter end the
portfolio had a Yield to Maturity at Cost of 0.43 %, exceeding the Yield to Maturity of its benchmark the Merrill Lynch 1- Year U.S.
Treasury Note Index by 29 basis points (0.29 %).
➢ In an environment of range bound yields, performance can be enhanced by holding longer maturities, which have higher initial
yields and benefit from "roll down ". PFM employed this strategy, rolling agencies with a shorter maturity into higher yielding 1 year
maturity.
➢ The Fed could well seek to provide further support for the U.S. economy by communicating the intention to maintain its
extraordinarily accommodative monetary policy far into the future, or by establishing specific employment and inflation hurdles that
would have to be breached before it changes its current policy stance. This supports the view that rates will remain low longer than
the market current anticipates.
➢ The yield curve is likely to remain positively sloped, anchored for the foreseeable future by the near -zero federal funds rate. In this
environment, lengthening duration should provide value, although longer duration investments have greater price risk if interest
rates should rise.
➢ Europe remains a highly fluid and problematic situation, as Italy and Spain appear headed for recession. Sovereign credit ratings
are under pressure, and large European banks are being forced to shed assets and raise large amounts of capital. A clear solution
appears elusive. We continue to avoid sensitive issuers and geographical regions.
➢ As always, we strive to maintain the safety of principal while at the same time positioning the portfolio for growth and searching for
tactical opportunities to enhance return. In these changing times, our strategy will remain flexible and may change in response to
changes in interest rates, economic data, market outlook or specific opportunities that arise.
PFM Asset Management LLG Section B - 1
C o f W in te r Sp ring s Investment Report - Quarter Ended December 31, 2011
The Citv's Investment Statistics
Account Name
Amortized Cost' I' Amortized Cost' II Market Value'" Market Value' 1 r Duration (Years)
December 31, 2011 September 30, 2011 December 31, 2011 September 30, 2011 December 31, 2011
General City Account Portfolio
$22,587,444.53
$23,092,142.72
$22,634,632.69
$23,145,597.60
0.92
Fidelity Institutional Money Market Fund Government Portfolio (Fund #257)
3,057,827.75
24,283.60
3,057,827.75
24,283.60
0.003
Money Market Fund - State Board of Administration Pool A
25,780.35
7.95
25,780.35
7.95
37 Days
Money Market Fund - State Board of Administration Pool B
595,911.82
621,672.65
595,911.82
621,672.65
N/A
Bank of America Cash for Operation - depository
3,034,010.49
1,324,516.68
3,034,010.49
1,324,516.68
0.003
Water & Sewer 2000 - Fidelity Institutional Money Market Fund Government Portfolio (Account #364)
716,677.54
716,659.67
716,677.54
716,659.67
0.003
Water & Sewer 2000 - Money Market Fund - State Board of Administration Pool A
748.20
0.22
748.20
0.22
37 Days
Water & Sewer 2000 - Money Market Fund - State Board of Administration Pool B
17,294.96
18,042.61
17,294.96
18,042.61
N/A
Total
$30,035,695.64
$25,797,326.10
$30,082,883.80
$25,850,780.98
Account Name
Yield to Maturity Yield to Maturity Yield to Maturity Yield to Maturity
on Cost' on Cost' at Market at Market Duration (Years)
December 31, 2011 September 30, 2011 December 31, 2011 September 30, 2011 September 30, 2011
General City Account Portfolio
0.43%
0.46%
0.22%
0.22%
0.78
Fidelity Institutional Money Market Fund Government Portfolio (Fund #257)
0.01%
0.01%
0.01%
0.01%
0.003
Money Market Fund - State Board of Administration Pool A
0.29%
0.24%
0.29%
0.24%
38 Days
Money Market Fund - State Board of Administration Pool B
0.00%
0.00%
0.00%
0.00%
N/A
Bank of America Cash for Operation - depository
0.25%
0.25%
0.25%
0.25%
0.003
Water & Sewer 2000 - Fidelity Institutional Money Market Fund Government Portfolio (Account #364)
0.01%
0.01%
0.01%
0.01%
0.003
Water & Sewer 2000 - Money Market Fund - State Board of Administration Pool A
0.29%
0.24%
0.29%
0.24%
38 Days
Water & Sewer 2000 - Money Market Fund - State Board of Administration Pool B
0.00%
0.00%
0.00%
0.00%
N/A
Weighted Average Yield
0.35%
0.42%
0.19%
0.21
Benchmarks
Merrill Lynch 1 Year U.S. Treasury Note Index'
December 31, 2011 September 30, 2011
0.14 % 0.17
Notes:
1. On a trade -date basis, including accrued interest.
2. In order to comply with GASB accrual accounting reporting requirements; forward settling trades are included in the monthly balances.
3. Excludes any money market fund /cash balances held in custodian account.
4. Past performance is not indicative of future results.
5. Source Bloomberg.
PFM Asset Management LLC Section B - 2
City of Winter Springs Investment Report - Quarter Ended December 31, 2011
General City Account Portfolio Composition and Credit Quality Characteristics
Security Type
December 31, 2011
% of Portfolio
September 30, 2011
% of Portfolio
U.S. Treasuries
$12,093,185.85
53.43%
$11,027,824.68
47.65%
Federal Agencies
9,241,691.24
40.83%
7,233,454.07
31.25%
Commercial Paper
1,299,755.60
5.74%
4,884,318.85
21.10%
Certificates of Deposit
0.00
0.00%
0.00
0.00%
Bankers Acceptances
0.00
0.00%
0.00
0.00%
Repurchase Agreements
0.00
0.00%
0.00
0.00%
Municipal Obligations
0.00
0.00%
0.00
0.00%
Corporate Notes /Bonds
0.00
0.00%
0.00
0.00%
Corporate Notes /Bonds - FDIC Insured
0.00
0.00%
0.00
0.00%
Mortgage Backed
0.00
0.00%
0.00
0.00%
Money Market Fund /Cash
0.00
0.00%
0.00
0.00%
Totals
$22,634,632.69
100.00%
$23,145,597.60
100.00%
U.S.
Treasuries,
53%
Commercia,
Paper
6%
AA+
94%
1+ (Short -
term)
6%
Notes:
1. End of quarter trade -date market values of portfolio holdings, including accrued interest.
2. Credit rating of securities held in portfolio, exclusive of money market fund /LGIP. Standard & Poor's is the source of the credit ratings.
Portfolio Composition
as of 12/31/11
Federal
Agency
obligations
41%
PFM Asset Management LLC Section B - 3
Credit Quality Distribution
as of 12/31 /11
City of Winter Springs Investment Report - Quarter Ended December 31, 2011
General City Account Portfolio Maturity Distribution
Maturity Distribution
December 31, 2011
September 30, 2011
Overnight (Money Market Fund)
$0.00
$0.00
Under 6 Months
5,014,970.73
8,542,053.39
6 - 12 Months
6,862,139.63
5,858,719.69
1 - 2 Years
10,757,522.33
8,744,824.52
2 - 3 Years
0.00
0.00
3 - 4 Years
0.00
0.00
4 - 5 Years
0.00
0.00
5 Years and Over 0.00 0.00
Totals $22,634,632.69 $23,145,597.60
50%
45%
40%
0 35%
0
30%
0
o_ 25%
m
20%
0 15%
0
0 10%
c
5%
n 0%
Portfolio Maturity Distribution'
ARC/
Notes:
1. Callable securities in portfolio are included in the maturity distribution analysis to their stated maturity date, although they may be called prior to maturity.
PFM Asset Management LLC Section B - 4
Overnight Under 6 Months 6 - 12 Months 1 - 2 Years 2 - 3 Years 3 - 4 Years 4 - 5 Years 5 Years and Over
City of Winter Springs, Florida'
Asset Allocation as of December 31, 2011*
Security Type'
December 31, 2011
December 31, 2011
Notes Permitted by
United States Treasury Securities
12,073,367.45
41.20%
100%
United States Government Agency Securities
-
0.00%
75%
Federal Instrumentalities
9,214,766.08
31.45%
80%
Certificates of Deposit
-
0.00%
25%
Repurchase Agreements
-
0.00%
50%
Commercial Paper
1,299,311.00
4.43%
30%
Corporate Notes - FDIC Insured
-
0.00%
50%
Mortgage - Backed Securities
-
0.00%
0%
Bankers' Acceptances
-
0.00%
30%
State and /or Local Government Debt (GO and Revenue)
-
0.00%
20%
Money Market Mutual Funds
3,679,519.92
12.56%
2 100%
Intergovernmental Investment Pool
-
0.00%
25%
Bank of America Cash for Operation
3,034,010.49
10.35%
2 100%
Individual Issuer Breakdown
December 31, 2011
December 31, 2011
Notes Permitted bf
Government National Mortgage Association (GNMA)
-
0.00%
50%
US Export-Import Bank (Ex -Im)
-
0.00%
50%
Farmers Home Administration (FMHA)
-
0.00%
50%
Federal Financing Bank
-
0.00%
50%
Federal Housing Administration (FHA)
-
0.00%
50%
General Services Administration
-
0.00%
50%
New Communities Act Debentures
-
0.00%
50%
US Public Housing Notes & Bonds
-
0.00%
50%
US Dept. of Housing and Urban Development
-
0.00%
50%
Federal Farm Credit Bank (FFCB)
-
0.00%
25%
Federal Home Loan Bank (FHLB)
4,284,172.85
14.62%
25%
Federal National Mortgage Association (FNMA)
3,409,920.04
11.64%
25%
Federal Home Loan Mortgage Corporation (FHLMC)
1,520,673.19
5.19%
25%
Student Loan Marketing Association (SLMA)
-
0.00%
25%
1. Does not Include bond proceeds.
2. managed by the Clty.
3. End of month trad .-date amortized cost of podtoli, holdings, Induding accmed Interest.
Asset Allocati rnt
as of December 31, 2011
United States Treasury
Securities _
4].20% Federal Instrumentalities
1 45%
Bank of America Cash for Commercial Paper
Operation 443%
10.35% Money Market Mutllat Funds
12.56%
Individual Issuer Breakdown
CD - Bank A
CD - Bank B
Fully collateralized Repo - A
Fully collateralized Repo - B
Toyota CP
CP B
CPC
CP D
Corporate Notes - FDIC insured C
Corporate Notes - FDIC insured D
Corporate Notes - FDIC insured E
BA Bank A
BA Bank B
BA Bank C
Municipal Notes /Bonds
Fidelity Institutional Money Market Fund Government Portfolio (Fund #257)
Money Market Fund - Florida Prime (SBA)
Money Market Fund - Florida SBA Fund B
December 31, 2011
December 31, 2011
Notes Permitted b
0.00%
15%
-
0.00%
15%
0.00%
25%
0.00%
25%
1,299,311.00
4.43%
10%
0.00%
10%
0.00%
10%
0.00%
10%
0.00%
25%
0.00%
25%
0.00%
25%
0.00%
10%
0.00%
10%
0.00%
10%
0.00%
20%
3,057,827.75
10.44%
2 25%
25,780.35
0.09%
2 25%
595,911.82
2.03%
N/A
PFM Asset Management LLC Section C - 1