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Home My WebLink AboutFin Investment Report 2011.08Agenda Item No: 3 c. C,Ty of Meeting Date: September 19, 2011 SAN RAFAEL CITY COUNCIL AGENDA REPORT Department: FINANCE V4 Prepared by: Van Bach City Manager Approval: if(_ Accounting Supervisor SUBJECT: INVESTMENT REPORT FOR AUGUST 2011 RECOMMENDATION: ACCEPT INVESTMENT REPORT FOR THE MONTH ENDING AUGUST 31, 2011, AS PRESENTED BACKGROUND: Pursuant to the State of California Government Code Section 53601, staff is required to provide the governing body a report regarding the City's investment activities. Each month the Finance Department prepares a report outlining the major investments for the preceding month. Included on the report are the cost of each instrument, the interest rates (yield), maturity dates, and market value. Separate schedules are prepared for both the City and Redevelopment Agency. Beginning in January 2005, the City established a contract with MBIA to administer cash management services to a portion of our portfolio. In February 2010, MBIA restructured its fixed-income asset management subsidiary and changed their name to Cutwater Asset Management (Cutwater). Services provided by Cutwater include updating our investment policy annually, cash flow administration, and procurement of various instruments using Cutwater's market expertise (aligned with our needs). In addition, Cutwater prepares a comprehensive monthly investment report that meets not only required reporting information required by State law, but can be used as an asset management tool. The August report contains information regarding the Cutwater managed operating funds, excluding our West America checking account, which had a balance of $2,532,306 at month end. The Cutwater reports provide a fair amount of detail. I am highlighting those pages that the community and Council might find most useful and informative. ANALYSIS: I will summarize elements of the key pages contained as an attachment with this report ❖ Page 2 — Review of fixed income securities market — The Federal Open Market Committee met on August 9 and announced that it will maintain a low fed funds rate through mid 2013 and downgraded its outlook on the US economy. File No.: Council Meeting: Disposition: SAN RAFAEL CITY COUNCIL AGENDA REPORT / Paim: 2 ❖ Page 6 — Recap of Securities Held — This page summarizes all of our operating funds. The chart shows a majority of our investments are in U.S. instrumentalities. Most of the City's liquid funds are held in the State of California LAIF pool, which is used as a daily account for withdrawals and deposits. Unrealized gains or losses are recorded only at fiscal year end for accounting purposes. ❖ Page 7 - Reflects Maturitv Distribution - All our operating cash funds are held to mature in less than one year (August 2012). Ninety eight percent of the total invested cash matures within 90 days (again, the LAIF pool accounting for most of these dollars). ❖ Individual security information is presented on the "Securities Held" (0aaes 8). Specific information is presented to show interest coupon rates, cost and fair values, earned income and projected net yields. Acquiring diversified instruments with varying maturity dates allows the market values to stay close to historical cost. ❖ Purchases (Daae 10), sales (Daae 11) and transactions (vacie 12) are presented on separate pages. This includes LAIF deposits and withdrawals for operating funds. Transaction for August included two U.S. Instrumentality calls — FHLB and FHLMC. LAIF activity reflects the need to move cash around as large receipts are deposited (monthly sales tax payments) and expenses are incurred (weekly vendor payments and semi-monthly payroll). ❖ The last page provides a Schedule of Uocomina Maturities and Cash Activities. This provides management an opportunity to fill holes in the cash flow cycles and replace maturing instruments as appropriate. Our LAIF balance for August ended with a balance of $29,729,452. Portfolio returns on LAIF dollars should be about 0.38 percent for August 2011. The percentage of investments held one year or less is one hundred percent at month end. By our own policy, this level of liquidity is adequate to cover our cash flow projections in the coming months. The City is well placed and diversified in the market for the coming months. By continuing our practice of diversifying into various agencies with different maturity dates, the City's portfolio is strengthened against both credit and market risk. FISCAL IMPACT: No financial impact occurs by adopting the report. The City continues to meet the priority principles of investing - safety, liquidity and yield in this respective order. The portfolio remains conservatively invested. Sufficient liquidity exists to meet daily operating and capital project requirements for the next six months. Operating funds, as defined for this report, exclude cash held with fiscal agents for the payment of bond principal and interest. OPTIONS/ACTION REQUIRED: The City Council should adopt the report as presented in order to satisfy current State Investment Code requirements and City policy. ATTACHMENTS W"Management Services- WorkFile\Finance- WorkFile\Council MateriakStaff Reports\201 I \City\cityinvrpt8201 1.doc SAN RAFAEL CITY COUNCIL AGENDA REPORT / Pau: 3 TREASURER'S CERTIFICATION I CERTIFY THAT ALL INVESTMENTS MADE ARE IN CONFORMANCE WITH THE CITY'S APPROVED INVESTMENT POLICY AND STATE INVESTMENT REGULATIONS. THE CITY HAS SUFFICIENT LIQUIDITY TO MEET ALL OF THE OBLIGATIONS REQUIRED DURING THE NEXT SIX-MONTH PERIOD. H JANET PENDOLEY INTERIM FINANCE DIRECTOR ASSET MAN,AkCEMENT CUTWATER Cutwater Asset Management 1700 Broadway, Suite 2050 Denver, CO 80290 303 860 1100 Fax: 303 860 0016 CITY OF SAN RAFAEL - CITY OPERATING FUNDS Reports for the period August 1, 2011 — August 31, 2011 Please contact Accounting by calling the number above or email cam reDorts(cbcutwater. com with questions concerning this report. Fixed Income Market Review August 31, 2011 U.S. Monthly Net Nonfarm Payrolls 09/30/05 - 08/31/11 r -RA -H-11 2 Treasury Yield Curves 07/29111 - 08/31/11 --- - --- ... ...... 3 6 1 2 3 5 10 30 Economic Indicators & Monetary Policv — The U.S. unemployment rate held at 9.1 percent in August with payrolls unchanged for the month, the weakest reading since September of last year. (See Chart 1.) This was a disappointment since economists expected payrolls to increase by a net 68,000 last month. Private payrolls increased by a net 17,000 in August compared to an expected increase of 95,000. The economy created an average of 165,000 jobs per month in the first quarter, which declined to 97,000 on a monthly basis during the second quarter. The economy created only 85,000 jobs combined in July and August. This is further evidence that the economic recovery is stalling. Based on the second estimate in real gross domestic product (GDP), the U.S. economy grew at a 1.0 percent annualized growth rate during the second quarter of 2011 compared to prior estimate of 1.3 percent. On a year -over -year basis, the economy grew only 1.5 percent from last June compared to 3.1 percent growth for all of 2010. The pace of the recovery has slowed down in 2011, which has resulted in fewer jobs being created on a monthly basis. At its latest meeting on August 9"', the Federal Open Market Committee (FOMQ kept the federal funds target rate at a range of zero to 0.25 percent. The FOMC acknowledged that economic growth has been considerably slower than anticipated and downside risks to future growth have increased. In response, the committee pledged to keep the federal funds target rate at an "exceptionally" low level through mid -2013. Three members of the committee dissented, preferring to maintain the open-ended pledge to keep rates low for an "extended period" of time. While the FOMC discussed the range of policy tools available to promote economic growth, it stopped short of initiating a third round of large-scale asset purchases stating "the Committee will continue to assess the economic outlook in light of incoming information and is prepared to employ these tools as appropriate." Yield Curve & Snreads — Treasury yields continued to trend lower in August due to weaker economic conditions and the FOMC's pledge to keep interest rates low thru mid -2013. At the end of August, three-month Treasury bills yielded 0.09 percent, six- month Treasury bills yielded 0.15 percent, two-year Treasuries yielded 0.36 percent, five-year Treasuries yielded 1.36 percent, 10 -year Treasuries yielded 2.80 percent, and 30 -year bonds yielded 4.12 percent. (See Chart 2.) Charts reprinted from Bloomberg L.P. Cutwater Asset Management Page 2 Additional Information August 31, 2011 A current version of the investment adviser brochure, for Cutwater Investor Services Corp., in the form of the Firm's ADV Part 2A is available for your review Please contact our Client Service Desk at 1-800-395-5505 or mail your request to: Cutwater Investor Services Corp. Attention: Client Services 113 King Street Armonk, NY 10504 A copy of the brochure will be sent to you either by mail or electronically at your option. In addition, a copy of the most recent version of the Firm's complete Form ADV can be downloaded from the SEC website at www.adviserinfo.sec.gov/. Cutwater Asset Management Page 3 City of San Rafael - City Operating Funds Activity and Performance Summary for the period August 1, 2011- August 31, 2011 Amortized Cost Basis Activitv Summary Beginning Amortized Cost Value Detail of Amortized Cost Basis Return 27,239,314.35 Additions Interest Earned Interest Contributions 3,479.500.00 Total Interest Received 10,250.00 (Amortization) Accrued Interest Sold 1,250.00 Current holdings Gain on Sales 0.00 31,108,526.37 Total Additions Cash and Equivalents 3,491,000.00 Deductions 0.00 11,547 45 Withdrawals 0.00 18.72 Fees Paid 1,000.00 Corporate Accrued Interest Purchased 0.00 0.00 Loss on Sales 0.00 Total Deductions (1,000m) Accretion (Amortization) for the Period 859.72 (117.56) Ending Amortized Cost Value 647.27 30,729,196.79 Ending Fair Value (117 56) 30,735,111.34 Unrealized Gain (Loss) 5,914.55 Annualized Comparative Rates of Return Twelve Six Month Trailing Month Trailing For the Month Fed Funds 0.14% 0.10% 0.09% Overnight Repo 0.08% 0.04% 0.05% 3Month T -Bill 0.09% 0.04% 0.01% 6 Month T -Bill 013% 0.09% 0.04% 1 Year T -Note 0.23% 0.20% 0.12% 2Year"f-Note 0.53% 0.51% 0.24% 5Year T -Note 1.69% 1.71% 1.02% Summary of Amortized Cost Basis Return for the Period Detail of Amortized Cost Basis Return Total Portfolio Excl. Cash Eq. Interest Earned Interest Accretion Realized Total (117 56) Earned (Amortization) Gain (Loss) Income Current holdings 3,242.16 Average Daily Historical Cost 31,108,526.37 1,692,622.42 Cash and Equivalents 11,547.45 0.00 0.00 11,547 45 U.S. Instrumentality 416.67 18.72 0.00 435.39 Corporate 2,083.33 76.17 0.00 2,159.50 Sales and Maturities U.S. Instrumentality 859.72 (212.45) 0.00 647.27 Total 14,907.17 (117 56) 0 00 14,789.61 Summary of Amortized Cost Basis Return for the Period Total Portfolio Excl. Cash Eq. Interest Earned 14.007.17 3,359.72 Accretion (Amortization) (117.56) (117 56) Realized Gain (Loss) on Sales O.O 0.00 Total Income on Portfolio 14,789.61 3,242.16 Average Daily Historical Cost 31,108,526.37 1,692,622.42 Annualized Return 0 56% 2.26% Annualized Return Net of Fees 052% 1.56% Annualized Return Year to Date Net of Fees 0.640,b 2.13% Weighted Average Effective Maturity to Days 4 98 Amortized Cost Summary - Page 4 Cuhrater Asset Mandgement City of San Rafael - City Operating Funds Activity and Performance Summary for the period August 1, 2011- August 31, 2011 Fair Value Basis Activity Summary Detail of hair Value Basis Return Beginning Fair Value 27,247,829.84 Interest Change in Total Earned Fair Value Income Additions Current Holdings Contributions 3,479,500.00 Cash and Equivalents 11.547.45 0.00 11,547 45 Interest Received 10,250.00 U.S. Instrumentality 416.67 (288.00) 128.67 Accrued Interest Sold 1,250.00 Corporate 2.083.3? (2.302.50) (219.17) Sales and Maturities U.S. Instrumentality 859.72 (128.00) 731.72 Total Additions 3,491,000.00 Total 14,90717 (2,718.50) 12,188.67 Deductions Withdrawals 0.00 Fees Paid 1,00000 Accrued Interest Purchased 0.00 Total Deductions (1,000.00) Change in Fair Value for the Period (2,718.50) Ending Fair Value 30,735,1 11.34 Annualized Comparative Rates of Return Summary of Fair Value Basis Return for the Period Twelve Six Month Trailing Month Trailing For the Month Total Portfolio Excl. Cash Eq. Fed Funds 0.14% 0.10% 009% Interest Earned 14,907 17 3359.72 Change in Fair Value f2 7j15u) (2,718.50) Overnight Repo 0.08% 0.04% 005% Total Income on Portfolio 12.188.67 641.22 3 Month T -Bill 0.17% 0.16% 0.24% Average Daily Historical Cost 31,108.526 37 1,692,622.42 6 Month T -Bill 0.35% 0.38% 0.82% Annualized Return 046% 0.45% 1 Year T -Note 0.53% 0.65% 1.65% Annualized Return Net of Fees 0.42% M 25%) 2 Year T -Note 1.57% 2.92% 4.24% Annualized Return Year to Date Net of Fees OA3% 036% 5 Year T -Note 549% 15.06% 2673% Weighted Average Iiffective Maturity in Days 4 98 Fair Value Summary - Page S C unvater Asset Management City of San Rafael - City Operating Funds Recap of Securities Held August 31, 2011 Portfolio / Segment Diversification Cash and Equivalents 96.8% U.S. Instrumentality 1.61/c Corporate Weighted Weighted 100.0% Wei,_,Iited Unrealized Average Average % Weighted Average Historical Amortized Gain Final Effective Portfultoi Average Market Cost Cost Fair Value (Loss) Matunty (Days) 'Maturity (Days) Segment Yield * Duration (Years) Cash and Equivalents 29,729,45234 29,729,452 34 29,729,452 34 000 1 1 9676 4 38 (M) U S. Instrumentality 499,53500 499,92874 501,36400 1,435 26 119 119 1 63 1,04 0.32 Corporate 496,270.00 499,81571 504,295.00 4,479 29 76 76 1.62 520 0 21 TOTAL 30,725,257.34 30,729,196.79 30,735,111.34 5,914.55 4 4 100.00 0.47 0,01 * Weighted Average Yield is calculated on a "yield to worst" basis Portfolio / Segment Diversification Cash and Equivalents 96.8% U.S. Instrumentality 1.61/c Corporate 1,61, Total: 100.0% Holdings Recap - Page 6 Cutwaler Asset Management City of San Rafael - City Operating Funds Maturity Distribution of Securities Held August 31, 2011 Maturity Historical Cost Percent Under 90 Days 30,225,722,3; 98 37% 90 To 180 Days 499,535 00 1,63% 180 Days to I Year 000 000% 1 To 2 Years 0,00 0.00% 2 To 5 Years 0,00 OAO% Over 5 Years 000 o00% 30,725,257,34 100.00% Maturity Distribution Maturity Distribution - Page I C'ulwater Asset Managemew City of San Rafael - City Operating Funds Unrealized Total Bio Securities Held Interest Interest Accrued Port (Loss) Received August 31, 2011 Interest Cost Yield 000 0 00 1 1.547 .15 Historical Cost/ Amortized Fair Value/ CUSIP/ Purchase Rate/ Maturityl Par Valuei Accrued Interest Cost/Accretion Change Description Date Coupon Call Date Shares Purchased (Amortization) In Fair Value Cash and Eauivalents 4,479.29 000 2,083 33 7,361 11 1.62 520 LAW 08/31/11 0381V 7,3x,111 29,729,452 34 29,729,452 34 29,729,452 34 29,729,452 34 14,047.45 26,431.35 100.00 0.00 0.00 0.00 29,729,452 34 29,729,452 34 29,729,452.34 29.729,452.34 TOTAL 0.00 0.00 000 U.S. Instrumentalitv 3133XVRS2 11/18/09 1,000 12,128/11 500,000 00 499,535.00 499,928.74 501,364 00 FHLB 000 18.72 (288.00) 500,000 00 499,535 00 499,928 74 501,364 00 I TOTAL. 000 1872 (28800) Corporate 36962GT38 09/19/07 5 000 11/15/11 500,000 00 496,270.00 499,815,71 504,295.00 GF. Capital 000 76 17 (2,302 501 500,000,00 496,270 00 499,815 71 504,295.00 TO'T'AL 000 76 17 (2302 50) GRAND TOTAL 30,729,452.34 30,725,257.34 30,729196.79 30,735,111.34 0.00 94.89 (2,590.50) V = variable rate, current rate shown, average rate for Cash & Equivalents Unrealized Total Bio Gain Interest Interest Accrued Port (Loss) Received F.arned Interest Cost Yield 000 0 00 1 1.547 .15 18.195 24 9676 038 000 000 11,53745 18,195 24 96.76 1,435.26 0.00 41667 87500 1 63 104 1,43526 0.0o 416.67 875 00 16-1 4,479.29 000 2,083 33 7,361 11 1.62 520 4,479.29 0.Ou 20833; 7,3x,111 1,62 5,914.55 0.00 14,047.45 26,431.35 100.00 Holdings - Page 8 Cutwater Asset Management City of San Rafael - City Operating Funds Maturity CUSIP Type Coupon GASB 40 - Deposit and Investment Risk Disclosure Date LAIF August 31, 2011 Cash and Equivalents 0381 ISSUER TOTAL Call S&P Moody Par Value i Historical % Portfolio Market 1,. portfolio Weighted Avg Date Raunp. Rating qhnrec cncl T4iqt Cncl V.1= M0 Vs,IU,- Mkt Dur (Yrs) AAA Aaa 29.729,452.34 29,729,452 34 96,76 29,729,452.34 06 7*3 000 29,729,45234 29,729,452,34 96,76 29,729,45234 96.73 0,00 AA- Aaa 500,00000 499,53500 1.63 501,3640(1 161 032 500,00000 499,535,00 163 501,364 00 1,63 012 AA Aa2 500.000 00 496,270.00 1 62 504,29500 164 1),21 500,00000 496,27000 1 62 304,295,00 1 64 u 21 30,729,452.34 30,725,257.34 100.00 30,735,111.34 100.00 (tol GASB 40 - Page 9 Cutwater Asset Mariageinew Maturity CUSIP Type Coupon Date LAIF Cash and Equivalents 0381 ISSUER TOTAL FHLB 3133XVRS2 U S. Instrumentality 1.000 12/28/2011 ISSUER TOTAL GE Capital 36962GT38 Corporate 5,000 11/15/2011 ISSU ER TOTAL GRAND TOTAL Highlighted totals are issuers representing 5.00% or more of the portfolio's market value GASB 40 - Page 9 Cutwater Asset Mariageinew CUSIP/ Purchase Rate/ Description Date Coupon Crash and Equivalents LMP 08/05/2011 0 381 V LAIF 08/25/2011 0 381 V TOTAL GRAND TOTAL V = variable rate, opening rate shown, average iate for Cash & Equivalents City of San Rafael - City Operating Funds Securities Purchased for the period August 1, 2011- August 31, 2011 Maturity Par Value/ Unit Cali Date Shares Cost 6,100,000 00 100 000 2,500,000 00 100 000 8,600,000 00 8,600,000.00 Purchases - Page 10 Principal Accrued Cost Interest Purchased yield 6,100.000.00 () 00 038 2,500.000 00 0.00 0.38 8.600,000.00 8,600,000.00 000 0,00 Cutwater Asset Management City of San Rafael - City Operating Funds Securities Sold and Matured for the period August 1, 2011- August 31, 2011 Sales - Page I t Cutwater Asset Management Sale or Amortized Cost at Sale/ Fair Value at Realized Accrued CUSIP/ Maturity Rate/ Maturity/ Par Value/ Historical Sale or Maturity i Maturity Sale or Maturitv 1 Gain Interest Interest interest Description Date Coupon Call Date Shares Cost Aeer / (Amort) Price Che, In Fair Value (Loss) Sold Received Earned Yield Cash and Eauiyalents LAIF 08/02!11 0,381 V 400,000 00 400,000 00 400,000.00 10000 400,000 00 000 0 00 000 000 0 38 000 0.00 LAIF 08/09/11 0.381 V 210,000,00 210,000 00 210,000 00 10000 210,00000 0,00 000 000 000 038 0.00 0,00 LAIF 08/12/11 0.381 V 800,000.00 800,000,00 800,000,00 10000 800,000.00 000 0 00 0,00 0.00 0 38 000 0,00 LAIF 08/30/11 0.381 V 2,200,000 00 2,200,000 00 2,200,000.00 10000 2,200,000 00 000 It 00 000 00o 038 000 0,00 TOTAL. 3,610,000.00 3,610,000,00 3,610,000 00 3,610,000 00 0.00 000 0,00 a 00 000 0.00 JI U.S. Instrumentality 3133XIJD91 Cali 08/10/11 2.050 08/10/12 1,000,000 00 1,011,260 00 1,000,000 00 100 00 1,000.000 00 000 0 00 10,_'5(100 512 5h 1 18 FIILB 08/10/12 (212 45) (393,00) 3134G2GB2 Call 08/26/11 1 000 V 11/26/14 500,000 00 500,000 00 500,000 00 10000 500,000 00 000 1,2x0 00 0.00 1-17 22 1 00 FHLMC 11/26/11 0 00 26600 TOTAL 1,500.000.00 1,511,260 00 1,500,000,00 1,500 000 00 000 1,250 W 10.25000 85972 (212.45) (128 00 ) GRAND TOTAL 5,110,000.00 5,121,260.00 5,110,000.00 5,110,000.00 0.00 1,250.00 10,250.00 85%72 (212.45) (128.00) V = variable rate, current rate shown, average rate for Cash & Cash Equivalents Sales - Page I t Cutwater Asset Management Balance 400,000.00 (5,700,000 00) ( 5,490,000 00) (5 479,750 00 ) (4,479 750 00) t3,679,750 00 ) (6,179.750 00 ) (5,678,500.00) ! 3,478,500 00 ) (3,478,500.00) Transactions - Page 12 C atwater Asset Management City of San Rafael - City Operating Funds Transaction Report for the period August 1, 2011- August 31, 2011 Date CUSIP Transaction Sec Type Description Maturity PAR- Value/Shares Principal Interest Tiansaclum Total 08/02/2011 Sold CE LAIF 400,00000 400,000.00 000 400,000 00 08/05/2011 Bought CF LAIF 6,100000.00 6,100,000.00 000 (6,100,000.00) 08/09/2011 Sold CE LAIF 210,000.00 210,000 00 000 -110,000 00 08/10/2011 3133XUD91 Interest INS FHLB 08/10/2012 1,000,000.00 000 10,250.00 10,250 00 3133XUD91 Call INS FHLB 08/10/2012 1,000,000 00 1,000,000 00 000 1 o0omoo,00 08/12/2011 Sold CF, LAIF 800,000.00 800,000.00 0,00 800,000 00 08/25/2011 Bought CE LAIF 2,50000 00 2,500,000.00 000 (2,500 000.00 ) 08/26/2011 3134G2GB2 Call INS FHLMC 11/26/2014 500,000.00 500.000 00 1,250,00 501,250 00 08/30/2011 Sold CE LAIF 2,200,000,00 2,200,000,00 0.00 2,200,000.00 Portfolio Activity Total Net Contributions ( 3,479,500.00 I Net Withdrawals 0.00 Fees Charged 1,000.00 Fees Paid 1,000.00 Balance 400,000.00 (5,700,000 00) ( 5,490,000 00) (5 479,750 00 ) (4,479 750 00) t3,679,750 00 ) (6,179.750 00 ) (5,678,500.00) ! 3,478,500 00 ) (3,478,500.00) Transactions - Page 12 C atwater Asset Management Trans Settle Description No Activity this period San Rafael Operating Securities Bid and Offer for the period August 01, 2011 - August 31, 2011 Call Date Broker Par Value Discount Price Y'FM/YTC Competitive Bids Securities Purchased Bid and Offer - Page 13 Cutwater ASSU Management Date Transaction CUSIP City of San Rafael - City Operating Funds Upcoming Cash Activity for the next 45 days Description Coupon Maturity Next Par / Shares nate Call Date NOTE: There is no activity for the period. Upcoming Cash Activity - Page 14 Transaction Principal Interest Total Cutwater Asset Management