Item 4.2 - City Investment Report as of December 31, 2013OF PO[Y�� J
ryP CR.�, IN THE GpJ
DATE:
TO:
FROM:
INITIATED BY:
SUBJECT:
Summary:
M=1201
February 18, 2014
APPROVED
Total
APPROVED AS AMENDED
❑
(SEE MINUTES)
7,906,259
DENIED
❑
REMOVED
❑
CONTINUED
0
Resolution No.
4,189,535
Honorable Mayor and Members of the City Council
Tina White, Interim City Manager
Scott Edwards, Director of Administrative Services
Peter Moote Assistant Director of Administrative S rvice K__
Andrew White, Finance ManagergV
City's Investment Report as of December 31, 2013
Quarterly reports of investments are required to be presented to Council. For your information,
attached is an investment portfolio report as of December 31, 2013.
Recommended Action:
It is recommended that the City Council accept and file the attached report.
Background:
Pursuant to Government Code Sec. 53646(b) and the City's Investment Policy, the Director of
Administrative Services (i.e., Treasurer) renders a quarterly investment report to the City Council
concerning the investment portfolio's earnings and performance results. In accordance with the
Investment Policy, the quarterly report includes information such as the investment type, issuer,
date of maturity, par value, amount invested, current market value, and the source of the market
value information.
Findings:
The City is in compliance with its adopted investment policy and the City's investment program
provides sufficient liquidity to meet its cash flow requirements for the next six months. The
amortized cost value of the City's investment portfolio as of December 31, 2013, was
$102,100,976. It consisted of the following:.
Investment Portfolio
Total
Deposits at CaITRUST
42,598,814
Deposits at the Local Agency Investment Fund (LAIF)
7,906,259
Other Cash and Equivalents
0
Commercial Paper
1,995,628
U. S. Treasury Notes
0
U. S. Federal Agency Notes
4,189,535
U. S. Instrumentalities
18,152,843
Corporate Notes
27,257,897
Total Amortized Cost Value of Investment Portfolio as of December 31, 2013
102,100,976
1 of 31 February 18, 2014 Item # 4.2
City's Investment Report
February 18, 2014
Page 2
The attached investment report was prepared by the City's investment manager, Cutwater Asset
Management, with input from the City's Administrative Services Department. Details on the City's
current portfolio follow. Additionally, a "Market Commentary" newsletter prepared by our
investment advisor is attached which offers a comprehensive overview of the current investment
environment.
The funds on deposit at LAIF and at CalTRUST earn interest at variable rates. The interest rate for
the month ending December 2013 is estimated at .26% for LAIF, .40% for the CalTRUST short-
term fund, and .70% for the CalTRUST medium -term fund.
The values of fixed income securities, as legal investment tools authorized under California
government codes, are closely tied with interest rates. As interest rates go up, the market values
of the securities go down. The difference between amortized cost and fair value is considered an
unrealized gain or loss. A realized loss is when the principal of the security is redeemed before its
maturity date at a fair value lower than its amortized cost value. The amortized cost value of the
investment portfolio is $102,100,976; the fair value is $102,170,989 for an unrealized gain of
$70,013 or .06% of the total amortized cost value. The source of the fair value information for the
U.S. Treasury Notes, the U.S. Federal Agency Notes, the U.S. Instrumentalities, and the Corporate
Notes is Interactive Data Corporation.
Also included with this report are recaps of the City's cash and investments held by fiscal agents,
non - managed investments, and cash on hand. The total book value of the cash and investments
held by our fiscal agents, U.S. Bank and The Bank of New York, at December 31, 2013, was
$22,243,488. The source of the market value information for these investments was U.S. Bank
and The.Bank of New York. The total book value of the non - managed investments was $147,142
at December 31, 2013. The City's cash on hand at December 31, 2013, totaled $788,212.
The December 31, 2013, balance of the City's Library Trust Fund is $239,406. This balance
reflects the payment of $652,000 from this fund for the Library remodel project. Through the fiscal
year 2013 -2014 period ending December 31, 2013, no transfer of interest earnings has been made
to the General Fund. At the close of fiscal year 2013 -14, 90% of the Library Trust Fund's interest
earnings will be transferred.
Fiscal Impact:
The investment portfolio earned $108,449 interest during December 2013 as well as $100,860
during November 2013 and $98,793 during October 2013.
Environmental Review:
This item is not subject to CEQA review.
Public Notification:
None.
TW:SE:PM:aw
2 of 31 February 18, 2014 Item # 4.2
City's Investment Report
February 18, 2014
Page 3
Attachments: A. Investment Statistics
B. Investment Report prepared by Cutwater Asset Management
C. City of Poway Investments and Cash with Fiscal Agent; General, Payroll, and
Petty Cash Report at December 31, 2013
D. December 2013 Market Commentary report prepared by Cutwater Asset
Management
3 of 31 February 18, 2014 Item # 4.2
City of Poway
Investment Statistics
Amortized Cost Value:
Deposits at CaITRUST
Deposits at the Local Agency
Investment Fund (LAIF)
Other Cash and Equivalents
Commercial Paper
U. S. Treasury Notes
U. S. Federal Agency Notes
U. S. Instrumentalities
Corporate Notes
Total Amortized Cost Value
Fair Value:
Deposits at CalTRUST
Deposits at the Local Agency
Investment Fund (LAIF)
Other Cash and Equivalents
Commercial Paper
U. S. Treasury Notes
U. S. Federal Agency Notes
U. S. Instrumentalities
Corporate Notes
Total Fair Value
Unrealized Gain (Loss)
Accrued Interest Earned
One Year Total Yield
Book Yield
Current Yield
Average Days
to Maturity
Glossary of Yield Terminology
December September
2012 2013
58,305,322
14,451,459
0
1,997,000
2,995,411
0
6,225,334
25,848,098
109,822,624
58,419,764
14,451,459
0
1,997,634
3,012,226
0
6,268,828
26,089,927
110,239,838
417,214
92,620
0.70%
0.72%
1.13%
302
49,525,889
14,695,191
0
1,999,070
1,999,038
4,212,812
11,158,342
22,143,076
105,733,41T-
49,544,474
14,695,191
0
1,999,510
2,002,890
4,208,767
11,121,874
22,228,823
105,801,529
68,111
105,579
0.88%
0.90%
1.39%
347
December
2013
42,598,814
7,906,259
0
1,995,628
0
4,189,535
18,152,843
27,257,897
102,100,976
42,628,679
7,906,259
0
1,996,790
0
4,189,119
18,123,187
27,326,955
1029-170,989
70,013
108,449
0.80%
0.83%
0.97%
417
Coupon: A bond's coupon is the periodic interest payment made to the holder of the fixed income security
during the life of the bond. Coupon payments can be made monthly, quarterly, or annually.
Book Yield: The Book Yield is that rate of return that will make the present value of the future cash flows
of a fixed income security equal to the price paid for the security. This assumes that the security will be
held to its maturity.
Current Yield: Annual rate of return on an investment expressed as a percentage. Current Yield of a
fixed income security is the annualized earnings (coupon) divided by the bond's market value as of
the valuation date.
One Year Total Yield: The One Year Total Yield or One Year Return represents the portfolio's percentage
change over a year's time, factoring in interest payments, changes in market value and reinvestment
of distributions.
Yield to Maturity: The Yield to Maturity (YTM) or Market Yield to Maturity of a fixed icome security is that
rate of interest that will make the present value of the future cash flows equal to the market value as of
the valuation date, assuming the bond is held to maturity.
4 of 31 Attachment A February 18, 2014 Item # 4.2
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29 of 31 . Attachment C February 18, 2014 Item # 4.2
monthly market review
market commentary for december 201
ECONOMIC ACTIVITY
Real gross domestic product of the United States increased at an annual rate of
4.1% in the third quarter of 2013, according to a "third estimate" by the Bureau
of Economic Analysis. This compares to a second quarter advance of 2.5 %.1
The increase in GDP was due primarily to contributions from private inventory
investment, PCE, nonresidential fixed investment, exports, and residential fixed
investment. This third estimate of GDP growth is based on "more complete
source data" than were available for the second estimate of 3.6% GDP growth
for the third quarter.2
EMPLOYMENT
American non -farm employers added 74,000 jobs in December, bringing the
unemployment rate down to 6.7 %.3 The number of new jobs was far below the
predictions of economists surveyed by Bloomberg. In fact the 74,000 print was
below even the most pessimistic prediction in the Bloomberg survey, with many
economists now blaming an unusually cold winter for the slowdown in hiring.4
While only 74,000 jobs were added in December, the number of unemployed
persons declined by 490,000 over the month, indicating that the majority of
the decline in the unemployment rate was due to many people giving up on job
searches rather than increased hiring. The number of unemployed persons was
10.4 million in December. When involuntary part-time workers and discouraged
workers are added to the unemployed, the total number of Americans who desire
but cannot full -time employment is 2o.6 million.5 The weak hiring in December
led to a decline of 0.2 percentage points in the civilian labor force participation
rate; it fell to 62.8 %. The employment - population ratio was unchanged at
58.6 %.6
CONSUMERS
Consumer confidence, as measured by the Conference Board Consumer
Confidence Index, increased in December, after declining in October and
November.? "Consumer confidence rebounded in December and is now close to
pre - government shutdown levels," remarked Lynn Franco, Director of Economic
Indicators at The Conference Board. "Looking ahead," she continued, "consumers
expressed a greater degree of confidence in future economic and job prospects,
but were moderately more pessimistic about their earning prospects ... consumers
are in better spirits today than when [2013] began."'
sector review
REPO
The Fed had been testing a reverse repo facility in December that appears to have
been successful. According to J.P. Morgan, the year -end allotment in the reverse
repo program totaled about $198 billion across 102 bidders, representing over 1o%
of the tri -party repo market. Based on the apparent popularity of the reverse repo
program, J.P. Morgan believes the Fed will either extend the test program or launch
it outright.14 Regardless ofwhether the Fed continues the program, repo volumes are
expected to fall throughout 2014 as higher bank capital requirements push banks to
ration their balance sheets and increase repo rates.15
TREASURIES /AGENCIES
The FOMC press release in December which announced the reduction in monthly
asset purchases also included an assurance that the federal funds rate will be kept
1. "Gross Domestic Product, 3rd Quarter 2013 (third estimate)." Bureau of
Economic Analysis. December 2o, 2013.
2. Ibid
3. 'The Employment Situation - December 2o13. " Bureau of Labor Statistics,
Department of Labor. January 10, 2014.
4. "Old Man Winter Put Chill on U.S. Payroll Figures in December." Bloomberg
Finance LP. January 10, 2014.
5. "The Employment Situation -December 2o13. " Bureau of Labor Statistics,
Department of Labor. January 10, 2014.
6. Ibid
7. "U.S. Consumer Confidence Rebounds in December." The Conference Board.
December3l, 2013.
8. Ibid
9. "Home Prices Stage Advance According to the S &PrCase- Shiller Home Price
31fie9f inAls expressed above are those of Cutwater Asset Manag,
®0000®®
CUTWATER
ASSET MANAGEMENT
HOUSING
Data released in December showed that U.S. home prices exhibited year -over-
year gains of 13.6% in October, as measured by the S &P /Case - Shiller Home Price
Indices 10- and 20 -city composites. "Both Composites' annual returns have been
in double -digit territory since March 2013 and increasing; now up 13.6% in the
year ending in October," said David M. Blitzer, Chairman of the Index Committee
at S &P Dow Jones Indices. He added a caveat, however, saying "monthly numbers
show we are living on borrowed time and the boom is fading. "9
"The key economic question facing housing is the Fed's future course to scale
back quantitative easing and how this will affect mortgage rates," continued Mr.
Blitzer. "Most forecasts for home prices point to single digit growth in 2014," he
added.-
MONETARY POLICY
The long- awaited "taper ", or a reduction in monthly asset purchases by the
Federal Reserve, finally arrived on December 18th. Risk assets rallied in response
to the news. The announcement came in the form of a press release following the
Federal Open Market Committee's December meeting, which read "in light of the
cumulative progress toward maximum employment and the improvement in the
outlook for labor market conditions, the Committee decided to modestly reduce
the pace of its asset purchases." The statement went on to say that monthly
asset purchases would be reduced to $75 billion from the previous $85 billion.
Furthermore, the statement announced that the federal funds rate would remain
near zero well beyond when unemployment reaches the previously announced
6.5% threshold.
On January 6, 2014 the United States Senate confirmed Janet L. Yellen as the next
chair of the Federal Reserve, making her the first woman to ever hold the job.
Ms. Yellen was approved by a 56 -26 vote, as some opponents to her candidacy
were unable to reach Washington on account of flight delays.' Because of a rule
change by majority leader Harry Reid, however, only 51 votes were needed for Ms.
Yellen's candidacy to succeed. Previously, 6o votes would have been required to
overcome the threat of filibuster.'3
near zero "well past" the time when the unemployment rate reaches 6.5% -the
level previously announced as a key threshold for winding down extraordinarily
accommodative monetary policy.i6 This should keep short-term Treasury and
Agency rates reasonably well- anchored.
COMMERCIAL PAPER
Bank capital requirements are expected to cause many financial CP issuers to trim
and term out their short-term unsecured borrowings. As a result, bank CP issuance
may only be at reduced levels in 2014.11 Despite this anticipated reduction in financial
issuance, J.P. Morgan expects collateralized bank CP outstandings to gradually
increase, allowing investors to gain secured bank exposure normally only available
in ABCP.B
Indices. "S &P DowJones Indices. December3l, 2013.
1o. Ibid
11. "Press Release. " Board of Governors of the Federal Reserve System.
December 18, 2013.
12. "Yellen Wins Backing of Senators to Lead Fed." The New York Times.
January 7, 2014.
13. "Senate Approves Janet Yellen as Fed Chairwoman." Financial Times.
January 6, 2014.
14. "Short Term Market Outlook and Strategy. "J.P. Morgan. January 6, 2014.
15. "2014: The Year of the Transition. " Barclays. November 21, 2013.
16. "Short Term Market Outlook and Strategy. "J.P. Morgan. January 6, 2014.
17. Ibid
18. "2o14: The Year of the Transition." Barclays. November 21, 2013.
Attachment D
hr ate/ Source: CutwatterAssseetManagement
tice. All statistics rrPSY�TflDr�th- �rt�s�riles� DTneIWi52 ndtY�
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monthly market review
CUTWATER
ASSET MANAGEMENT
market summary for december 2013
WEEK - ENDING RATES AND YIELDS
12/o6 12/13 12/20 12/27 4" QTR AVG 3" QTR AVG 2nd QTR AVG ill QTR AVG
Overnight Rates
Effective Fed Funds 0.07 0.07 0.07 0.07 0.08 o.o8 0.11 0.14
Repurchase Agreements o.o6 0.05 0.02 0.00 0.07 0.04 0.07 0.13
Discount Rates
1 Month Treasury Bill
0.02
0.01
0.00
1 Month Agency Disc.
0.04
0.04
0.05
1 Month Com'I Paper
0.12
0.09
0.12
3 Month Treasury Bill
0.05
0.05
0.04
3 Month Agency Disc.
0.08
0.08
0.09
3 Month Com'l Paper
0.14
0.14
0.15
6 Month Treasury Bill
0.08
0.08
0.07
6 Month Agency Disc.
0.12
0.11
0.12
6 Month Com'l Paper
o.16
o.16
o.18
Yields
0.07
0.09
0.10
1 Year Treasury
0.13
0.13
0.13
1 Year Agency
0.14
o.18
0.17
2 Year Treasury
0.30
0.33
0.38
2 Year Agency
0.36
0.42
0.44
5 Year Treasury
1.49
1.53
1.68
5 Year Agency
1.78
1.85
1.96
HISTORICALYIELD CURVE
3mo.6mo. iyr. Syr
KEY ECONOMIC INDICATORS
Unemployment Rate
Consumer Price Index
- Less Food and Energy
Consumer Confidence
FOMC Rate Decision
Gross Domestic Product
D) IA
31 A4 h Year -to -Date
Tyr
NASDAQ
Month
11/29/13
ioyr.
Forthe
Period
Nov
Nov
Nov
Dec
C9
Year -to -Date
0.02
0.04
0.01
0.02
0.05
0.04
o.o6
0.03
0.04
0.05
0.12
0.11
0.12
0.13
0.14
0.04
0.05
0.02
0.04
o.o8
0.09
0.07
0.04
o.o6
o.o8
0.14
0.13
0.15
o.16
0.17
o.o6
o.o6
0.05
0.07
0.10
0.10
0.10
0.07
0.09
0.10
o.18
0.17
0.20
0.20
0.21
0.13
0.12
0.12
0.13
0.15
0.17
o.16
0.22
0.20
0.17
0.39
0.32
0.36
0.27
0.25
0.46
0.40
0.46
0.35
0.30
1.74
1.44
1.51
0.92
0.82
2.04
1.78
1.78
1.11
1.00
Source: Bloomberg
Finance LP
5.00
4.00
3.00
2.00
1.00
12/31/13
0.00
3oyr.
Source: Bloomberg
Finance LP
Date of
Release
Expected
Actual
Prior
12/o6
7.2%
7.0%
7.3%
12/17
1.3%
1.2%
1.0%
12/17
1.7%
1.7%
1.7%
12/31
76.o
78.1
70.4
12/18
0% -0.25%
0% -0.25% 0% -0.25%
12/05
3.1%
3.6%
2.8%
S &P 500
Cutwater Asset Management
iii King Street
Armonk, NY 10504
- -� 7663 -3030
Month
Year- tp,e�i�uary 18,
y8�6v�6
LUWitem # 4.2