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HomeMy WebLinkAbout2012 08 13 Informational 103 Investment Report Third QuarterCOMMISSION AGENDA ITEM 103 August 13, 2012 Regular Meeting Informational X Consent Public Hearings Regular KS SB City Manager Department REQUEST: The City Manager and the Finance and Administrative Services Department providing the Investment Report for the third quarter of fiscal year 2012 (quarter ending June 30, 2012) as prepared by PFM Asset Management LLC. SYNOPSIS: Distribution of the investment report for the third quarter of the 2012 fiscal year (quarter - ending June 30, 2012). CONSIDERATIONS: The General City Account portfolio is of high credit quality and maintains adequate liquidity. The portfolio is invested in Federal Agency, U.S. Treasury and high quality commercial paper securities. PFM's attached report provides additional information regarding the City's investment position at June 30, 2012. FISCAL IMPACT: The weighted average yield at June 30, 2012 is .41 %. The weighted average yield at March 31, 2012 was .27 %. This portfolio has an average maturity of less than one year (.95 years). 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 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 Informational 103 PAGE 1 OF 2 - August 13, 2012 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. RECOMMENDATION: Staff requests the City Commission receive and review the information provided in this Agenda Item. ATTACHMENTS: Investment Report for quarter- ending June 30, 2012 Informational 103 PAGE 2 OF 2 - August 13, 2012 Investment Advisors Steven Alexander, CTP, CGFO, Managing Director David Jang, CTP, Senior Managing Consultant Gregg Manjerovic, CFA, Portfolio Manager D. Scott Stitcher, CFA, Senior Managing Consultant Rebecca Dole, CTP, Consultant Jan Anguel, Consultant City of Winter Springs Li r ter PFM Asset Management LLC 300 S. Orange Avenue, Suite 1170 Orlando, FL 32801 (407) 648 -2208 (407) 648 -1323 fax One Keystone Plaza, Suite 300 North Front & Market Streets Harrisburg, PA 17101 -2044 717- 232 -2723 717 - 233 -6073 fax City of Winter Springs Investment Report - Quarter Ended June 30, 2012 Table of Contents Tab I. Section A Market Review Tab II. Section B Executive Summary and General City Account Portfolio Performance Section C Asset Allocation Chart Tab III. June 30, 2012 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 June 30, 2012 TAB I City of Winter Springs Investment Report — Quarter Ended June 30, 2012 Summary • During the second quarter, investors searched for a safe place to hide amid weaker economic data and the ongoing European sovereign debt crisis. European efforts to stem contagion from its ongoing debt crisis resulted in higher volatility for European markets. • U.S. economic data showed mixed results. While the labor market and the manufacturing sector looked weaker, the housing market showed signs of a rebound. • PFM Asset Management LLC (PFMAM) believes the domestic economy will continue to expand, albeit at a slower pace, and aims to take advantage of the more volatile market environment by finding compelling yet undervalued investment opportunities. Economic News Economic data was weaker across the globe. Gross domestic product (GDP) in the U.S. for the first quarter of 2012 was 1.9 %, compared to 3.0% for the fourth quarter of 2011. At the same time, the European economic picture worsened, as Spain fell into its second recession since 2009 and the European debt crisis continued to pose challenges. Emerging- markets economies also experienced slower growth, as China had its slowest pace of economic growth since 2009 and India reported first - quarter growth of 5.3% compared to a 6.1% rate of growth for the previous quarter. In response, central banks have kept accommodative policies in place and, in some cases, added further support to their economies. U.S. job market conditions deteriorated during the quarter, as the unemployment rate had its first increase since June 2011, rising to 8.2% in May from 8.1% in April. However, the housing market has shown some improvements during the quarter. New -home sales in May exceeded economists' expectations, reaching their highest level PFM Asset Management LLC since April 2010, and the S &P /Case - Shiller Index reported a third consecutive month of price gains for single - family homes. Oil and other commodity prices fell for most of the quarter due to reports of slower growth in the global economy. However, they rebounded sharply at the end of June, with the S &P GSCI Index rising the most in three years when the European Union announced it would increase its aid to struggling member nations. The S &P 500 Index rallied on this positive news as well, after losing ground in the first two months of the quarter. Total Returns of Various Asset Classes Quarter ended June 30, 2012 Interest Rates U.S. interest rates declined across the yield curve. Slowing growth, a decline in inflation, and a flight to quality all fed the decline. The Federal Reserve (the "Fed ") maintained its commitment to keeping interest rates at low levels until at least late 2014, and the federal 5A% 7.3% - 13.4% s &PSOQ Index MSCI Total Return EAFE (Domestic Total Return Equity) (International Equity) Citigroup Euro Bond Index 1 -5 Year A -AAA Corporate Index 2.2% 0 6% Quarterly Return ®Annual Return 1 -5 Year Federal Agency Index Sources: Bank of America Merrill Lynch, Citigroup, Bloomberg 1-5 Year Treasury Index 1 City of Winter Springs Investment Report — Quarter Ended June 30, 2012 funds rate stayed within a band from zero to 0.25 %. The central bank also stated that it would extend its program of buying longer -dated Treasuries while selling short -dated Treasuries, also known as "Operation Twist," until the end of the year. The Fed lowered its forecasts for domestic economic growth, while at the same time increasing its forecasts for unemployment. 3.5% 3.0% 2.5% 2.0% L5% 1.0 %© 0.5% H 0.0% 2 -Year, 5 -Year, and 10 -Year U.S. Treasury Note Yields .June 30, 2011 through June 30, 2012 Jun 11 Aug 11 2 -Year TSY Oct 11 Source: Bloomberg Dec11 Feb12 Apr12 5 -Year TSY 10 -Year TSY Jun 12 Thirty -year mortgage rates fell to new lows, which drove some of the positive developments in the housing market. As shown in the charts on the following page, longer -dated Treasuries performed well for the quarter and 12 -month period. Corporate bonds outperformed Treasuries and Agencies on a duration- adjusted basis for the quarter and 12 -month period, and Treasuries beat Agencies for the quarter but not for the 12 -month period. Agencies and corporate bonds had PFM Asset Management LLC a difficult time during the month of May as the markets dealt with the uncertainties surrounding the European debt crisis; however, both sectors improved markedly in June as a result of Europe's new commitments to resolving its debt crisis. Five- and ten -year Treasury yields dropped to record lows after the employment report was released on June 1, and then increased slightly during the month. Agency spreads remained mostly unchanged from May to June, and outperformed Treasuries in June due to their relatively higher yields. With Agency and corporate spreads narrowing, PFMAM believes that municipal and Agency mortgage- backed securities provide good value with acceptable levels of risk. U.S. Treasury Yields — Quarter and Year - over -Year Changes Date 3 -month 1 -year 2 -year 5 -year 10 -year 30 -yea r 30- Jun -12 31- Mar -12 Change over Quarter 30- Jun -11 Change over Year Source data: Bloomberg PFMAM Outlook 0.08% 0.21% 0.30% 0.72% 1.65% 2.75% 0.07% 0.17% 0.33% 1.04% 2.21% 3.34% 0.02% 0.04% -0.03% -0.32% -0.57% -0.58% 0.02% 0.19% 0.46% 1.76% 3.16% 4.37% 0.07% 0.02% -0.16% -1.04% -1.52% -1.62% We believe that the domestic economy will continue to grow, despite weaker reports on the jobs market. Shorter -term rates are range - bound, while longer -term yields are declining, resulting in a flatter yield curve. Currently, we do not believe that rates will head substantially higher, as the Fed is maintaining a loose monetary policy and inflation remains within the Fed's mandate of 2% for core personal consumption expenditures. 2 City of Winter Springs Investment Report — Quarter Ended June 30, 2012 Lower oil prices may currently provide some relief to U.S. consumers. On the other hand, the gloomy employment picture is still weighing on consumer spending, as is higher core inflation. Returns for 2 -Year, 5 -Year, and 10 -Year Treasuries Quarter ended June 30, 2012 20.0% 16.0% 12.0% 8.0% 4.0% 0.0©/n O.1O %0 58%a Short -term yields have stayed within a narrow range for the quarter. There are also fewer opportunities for investment in the money market sector, as Fannie Mae and Freddie Mac reduce their short - term debt issuance. Agency and corporate spreads have been volatile and reactive to risk -on /risk -off psychology in the market, which creates opportunities for active management strategies to add value. 17.36% Duration - Adjusted Returns for Fixed - Income Securities Quarter ended June 30, 2012 2 -Year U.S. Treasury 5 -Year U.S. Treasury 10 -Year U5. Treasury Index Index index Quarter ended 6/30/2012 ®12 Months ended 6/30/2012 Source: Bloomberg, using Bank ofAmerica Merrill Lynch indexes. The extension of "Operation Twist" announced by the Fed in June should place continued downward pressure on intermediate -term Treasury yields, as the Fed will buy up to $267 billion in securities over the corning months. The action should support rates for Treasuries with maturities of two years and under, as the Fed offsets its purchases by selling short -dated Treasuries. 2,0% 1.55/ 0,79% U.S. Treasury 1.515 Federal Agency AA/AAA Corporate Current Quarter • Past 12 Months Source: Bloomberg, using Bank ofAmerica Merrill Lynch 1 -3 year indexes. The views expressed within this material constitute the perspective and judgment of PFM Asset Management T .T .0 (PFMAM) 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, PFMAIVI cannot guarantee its accuracy, completeness or suitability. This material is for general information pu/poses 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. PFM Asset Management LLC 3 City of Winter Springs Investment Report - Quarter Ended June 30, 2012 TAB II City of Winter Springs Investment Report - Quarter Ended June 30, 2012 Executive Summary PORTFOLIO STRATEGY > The City's General City Account Portfolio is of high credit quality and invested in Federal Agency, U.S. Treasury, and commercial paper securities. > 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 0.44 %, exceeding the Yield to Maturity of its benchmark the Merrill Lynch 1 Year U.S. Treasury Note Index by 20 basis points (0.20 %). > For most of the first quarter, Treasury yields stayed within the established ranges they had been in since August 2011. However, in mid - March, yields moved sharply higher to eight -month highs. Despite the move higher, we concluded that this did not represent a fundamental change in the marketplace, nor did it warrant a significant change in strategy. The Federal Reserve has committed to keeping rates low through late 2014, and economic conditions continue to reflect only moderate growth. We used higher rates as an opportunity to modestly extend the Portfolio's duration. > Several months of stronger economic news has improved the outlook for the U.S. economy, but we expect interest rates to remain range -bound due to the Federal Reserve's loose monetary policy, lingering worries about Europe and China, and moderate levels of inflation in core prices. In particular, the fed funds target rate —set at 0.00% to 0.25% since December 2008 — creates a strong anchor, holding down short- and intermediate -term rates for the foreseeable future. > As always, we strive to maintain the safety of principal, while at the same time seeking opportunities to add value. 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 LLC Section B - 1 City of Winter Springs Investment Report - Quarter Ended June 30, 2012 The City's Investment Statistics Account Name General City Account Portfolio Fidelity Institutional Money Market Fund Government Portfolio (Fund #257) Money Market Fund - State Board of Administration Pool A Money Market Fund - State Board of Administration Pool B Bank of America Cash for Operation - depository Water & Sewer 2000 - Fidelity Institutional Money Market Fund Government Portfolio (Account #364) Water & Sewer 2000 - Money Market Fund - State Board of Administration Pool A Water & Sewer 2000 - Money Market Fund - State Board of Administration Pool B Total Amortized Cost' •" June 30 2012 $26,159,249.53 42,670.22 24,019.50 541,030.03 2,419,929.76 716,712.48 697.12 15,702.15 $29,920,010.79 Amortized Cost' °' March 31, 2012 $25,517,711.97 655, 396.19 48,116.05 573,608.48 2,770,097.24 716,695.41 1,396.45 16,647.66 $30,299,669.45 Market Value'•'•' June 30 2012 $26,184,497.07 42,670.22 24,019.50 541,030.03 2,419,929.76 716,712.48 697.12 15,702.15 $29,945,258.33 Market Value' ' Duration (Years) March 31, 2012 June 30. 2012 $25,553,386.88 0.95 655,396.19 0.003 48,116.05 38 Days 573,608.48 N/A 2,770,097.24 0.003 716,695.41 0.003 1,396.45 38 Days 16,647.66 N/A $30,335,344.36 Account Name General City Account Portfolio Fidelity Institutional Money Market Fund Government Portfolio (Fund #257) Money Market Fund - State Board of Administration Pool A Money Market Fund - State Board of Administration Pool B Bank of America Cash for Operation - depository Water & Sewer 2000 - Fidelity Institutional Money Market Fund Government Portfolio (Account #364) Water & Sewer 2000 - Money Market Fund - State Board of Administration Pool A Water & Sewer 2000 - Money Market Fund - State Board of Administration Pool B Weighted Average Yield Yield to Maturity Yield to Maturity Yield to Maturity Yield to Maturity on Cost' on Cost° at Market at Market Duration (Years) June 30. 2012 March 31, 2012 June 30. 2012 March 31, 2012 March 31, 2012 0.44% 0.45% 0.28% 0.28% 0.92 0.01% 0.01% 0.01% 0.01% 0.003 0.31% 0.33% 0.31% 0.33% 34 Days 0.00% 0.00% 0.00% 0.00% N/A 0.25% 0.25% 0.25% 0.25% 0.003 0.01% 0.01% 0.01% 0.01% 0.003 0.31% 0.33% 0.31% 0.33% 34 Days 0.00% 0.00% 0.00% 0.00% N/A 0.41% 0.40% 0.27% 0.26% Benchmarks Merrill Lynch 1 Year U.S. Treasury Note Index' 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. June 30 2012 0.24% March 31, 2012 0.22% PFM Asset Management LLC Section B - 2 City of Winter Springs Investment Report - Quarter Ended June 30, 2012 General City Account Portfolio Composition and Credit Quality Characteristics Security Type' June 30, 2012 % of Portfolio March 31, 2012 % of Portfolio U.S. Treasuries $15,059,825.64 57.51% $12,060,466.24 47.20% Federal Agencies 8,320,442.58 31.78% 9,195,775.34 35.99% Commercial Paper 2,804,228.85 10.71% 4,297,145.30 16.82% 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 $26,184,497.07 100.00% $25,553,386.88 100.00% U.S. Treasuries 57% Portfolio Composition as of 06/30/12 Federal Agency Commercial Obligations Paper 32% 11% AA+ 89% Credit Quality Distribution2 as of 06/30/12 A -1+ (Short - term) 11% 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. PFM Asset Management LLC Section B - 3 City of Winter Springs Investment Report - Quarter Ended June 30, 2012 General City Account Portfolio Maturity Distribution Maturity Distribution' June 30, 2012 March 31, 2012 Overnight (Money Market Fund) $0.00 $0.00 Under 6 Months 3,234,407.40 4,297,145.30 6 - 12 Months 10,511,056.45 14,157,952.65 1 - 2 Years 12,439,033.22 7,098,288.93 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 $26,184,497.07 $25,553,386.88 Percentage of Total Portfolio 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 0% 0% 17% 12% 40% Portfolio Maturity Distribution' 55% 48% 28% ❑June 30, 2012 March 31, 2012 0% 0% 0% 0% 0% 0% 0% 0% Overnight Under 6 Months 6 - 12 Months 1 - 2 Years 2 - 3 Years 3 - 4 Years 4 - 5 Years 5 Years and Over 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. 40 PFM Asset Management LLC Section B - 4 City of Winter Springs, Florida' Asset Allocation as of June 30, 2012 Security Type' June 30, 2012 June 30, 2012 Notes Permitted by Policy United States Treasury Securities 15,054,063.16 51.58% 100% United States Government Agency Securities - 0.00% 75% Federal Instrumentalities 8,301,551.12 28.44% 80% Certificates of Deposit - 0.00% 25% Repurchase Agreements - 0.00% 50% Commercial Paper 2,803,635.25 9.61% 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 607,719.85 2.08% 100% Intergovernmental Investment Pool - 0.00% 25% Bank of America Cash for Operation 2,419,929.76 8.29% 2 100% Individual Issuer Breakdown Federal Instrumentalities 28.44% June 30, 2012 June 30, 2012 Notes Permitted by Policy Individual Issuer Breakdown June 30, 2012 June 30, 2012 Notes Permitted by Policy Government National Mortgage Association (GNMA) - 0.00% 50% CD - Bank A US Export-Import Bank (Ex -Im) - 0.00% 50% CD - Bank B Farmers Home Administration (FMHA) - 0.00% 50% Fully collateralized Repo - A Federal Financing Bank - 0.00% 50% Fully collateralized Repo - B Federal Housing Administration (FHA) - 0.00% 50% Nordea North America CP General Services Administration - 0.00% 50% Toyota CP New Communities Act Debentures - 0.00% 50% CP C US Public Housing Notes & Bonds - 0.00% 50% CP D US Dept. of Housing and Urban Development - 0.00% 50% Corporate Notes - FDIC insured C Federal Farm Credit Bank (FFCB) - 0.00% 25% Corporate Notes - FDIC insured D Federal Home Loan Bank (FHLB) 3,372,173.80 11.55% 25% Corporate Notes - FDIC insured E Federal National Mortgage Association (FNMA) 3,407,789.38 11.68% 25% BA Bank A Federal Home Loan Mortgage Corporation (FHLMC) 1,521,587.94 5.21% 25% BA Bank B Student Loan Marketing Association (SLMA) - 0.00% 25% BA Bank C Municipal Notes /Bonds Fidelity Institutional Money Market Fund Government Portfolio (Fund #257) Money Market Fund - Florida Prime (SBA) Notes. Money Market Fund - Florida SBA Fund B 1 Does not include bond proceeds. 2 Managed by the City 3 End of month trade -date amortized cost of portfolio holdings, including accrued interest. PFM Asset Management LLC 1,504,423.92 1,299,211.33 42,670.32 24,019.50 541,030.03 0.00% 0.00% 0.00% 0.00% 5.15% 4.45% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.15% 0.08% 1.85 2 2 2 15% 15% 25% 25% 10% 10% 10% 10% 25% 25% 25% 10% 10% 10% 20% 25% 25% N/A Section C - 1 City of Winter Springs Investment Report - Quarter Ended June 30, 2012 TAB III City of Winter Springs Investment Report - Quarter Ended June 30, 2012 Insert Month End Statement here to complete the report. Statements are available online at www.pfm.com login and click on the link to "Monthly Statements" on the left side of the screen.