INVESTMENT
PORTFOLIO
REPORT FOR
SEPTEMBER 30, 2022
CITY COUNCIL
December 13, 2022
CITY TREASURER’S
OFFICE
• Portfolio Overview
• Economic Conditions
• Outlook and Strategy
CITY TREASURER’S
OFFICE
PORTFOLIO
OVERVIEW
CITY TREASURER’S
OFFICE
$360
$380
$400
$420
$440
$460
$480
$500
City Investment Pool Combined Successor Agency and Housing Authority Historical Market Value
$477 M
$9 M
(in millions)
$42 M
CALPERS
payment
$45 M
CALPERS
payment
Portfolio Market Value by Asset Class
Negotiable Certificates of Deposit, $14M
3%
Corporates - Medium
Term Notes, $116M
24%
Money Market, $67M
14%
Municipal Bonds, $67M
14%
Supranational Obligations, $22M
4%
US Agency, $161M
34%
US Treasury Notes, $31M
7%
Portfolio Market Value
$ 477 M
Compliance – Portfolio Allocation
ASSET CLASS MARKET
VALUE PORTFOLIO % LEGAL MAXIMUM POLICY LIMITS COMPLIANCE Negotiable CDs $ 14 M 3% 30% 0 to 30%
LAIF $ 0 M 0% $75 M per
account
$75 M per
account
Corporates –
Medium Term Notes $ 116 M 24% 30% 0 to 30%
Money Market $ 67 M 14% 20% 0 to 20%
Municipal Bonds $ 67 M 14% No limit 0 to 30%
Supranational
Obligations $ 22 M 4% 30% 0 to 15%
US Agency $ 161 M 34% No limit 0 to 90%
US Treasury $ 31 M 7% No limit 0 to 100%
$65
$42 $46
$99
$157
$67
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
0-1 Year 1-2 Years 2-3 Years 3-4 Years 4-5 Years
Maturity Range
Money
Market
City
Investment
Pool
(in millions)
Portfolio Duration
2.57 years
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
Jan-14
Mar-14
May-14
Jul-14
Sep-14
Nov-14
Jan-15
Mar-15
May-15
Jul-15
Sep-15
Nov-15
Jan-16
Mar-16
May-16
Jul-16
Sep-16
Nov-16
Jan-17
Mar-17
May-17
Jul-17
Sep-17
Nov-17
Jan-18
Mar-18
May-18
Jul-18
Sep-18
Nov-18
Jan-19
Mar-19
May-19
Jul-19
Sep-19
Nov-19
Jan-20
Mar-20
May-20
Jul-20
Sep-20
Nov-20
Jan-21
Mar-21
May-21
Jul-21
Sep-21
Nov-21
Jan-22
Mar-22
May-22
Jul-22
Sep-22
Portfolio Yield 2-Year Treasury 12-Month Rolling Average LAIF Average Monthly Yield Yield
1.51%
2.11%
2.23%
With our laddering strategy, our
portfolio has yielded consistent
and stable returns despite market
fluctuations
$0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
$800,000
$900,000
$1,000,000
Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21 Mar-21 Apr-21 May-21 Jun-21 Jul-21 Aug-21 Sep-21 Oct-21 Nov-21 Dec-21 Jan-22 Feb-22 Mar-22 Apr-22 May-22 Jun-22 Jul-22 Aug-22 Sep-22 Interest Income
Income Summary
$848K
in September 2022
Interest Income
ESG Investments Spotlight
Morgan Stanley Institutional Liquidity Fund – Impact Class Shares • AAA-rated money market fund that provides daily liquidity while yielding more than LAIF (3.65% vs 2.12%)
• Fund also used by San Francisco, San Diego, and San Bernardino Counties • With Impact Share Class, Morgan Stanley contributes 0.03% of the management fee which would otherwise have been paid to brokers • Donation goes to Opportunity Finance Network (est. 1985), whose Finance Justice Fund aims to help close the racial wealth gap by serving communities experiencing disproportionately high poverty and disinvestment • Sample recipient is Inclusive Action for the City – co-founded LA and CA Street Vendor Campaigns to legalize and decriminalize street vending, allowing them to secure permits and access to equipment. They also provide low-interest micro-loans to entrepreneurs who cannot secure capital traditionally • Total estimated contribution from Burbank investment for 2022 is ~$7,200
ECONOMIC
CONDITIONS
CITY TREASURER’S
OFFICE
Unemployment and Wages
With the unemployment rate at
3.7%, the labor market is still tight
with 1.7 job vacancies for every
unemployed person.
4 M quit their jobs in October
People who leave their jobs are
seeing wage growth of 7.7% versus
5.5% for those who stay. Even a slight
increase in inflation expectations can
lead to a wage-price spiral
Savings
As of June, median cash balances
were still elevated, ranging from 60%
for low-income families, to 45% for
high-income families
US households still hold
$1.5 Trillion in excess savings,
stemming from fiscal support and
foregone consumption
Consumer Spending
Consumer spending remains strong.
Retail sales jumped 1.3% in October
with people buying cars, furniture,
gas, groceries, and restaurant meals
Companies are reporting record
revenues and profits, as they see
minimal resistance to higher prices
2.3% savings rate
lowest since 2005
“profits up 14% from last year…”
“profits grew by more than 20%...”
“take as much pricing as we could…”
“profits up nearly 26%...”
“best month ever for ride bookings”
“strongest month in the history of Las Vegas”
“rising demand…drive strong pricing power…”
“not seeing any cracks in underlying demand”
Inflation
CPI inflation has slowed to 7.1%,
lower than expected, but still much
higher than the Fed’s 2% target
Food, energy, and services continue
to be major drivers. Forecasts see
inflation slowing to ~3% by late 2023
Sample Categories with Notable Year-Over-Year Increases (Nov 2022)
Housing Market
With 30-year fixed mortgage rates
around 6.33%, pending home sales
have dropped 35% year over year
While strong household formation
led to rising costs in recent years, the
slowing growth of single-person
households should temper demand
Home prices are
expected to drop
10 to 30%
Asset Prices and Recession Probability
S&P down 17% from
all-time high in January
Bond prices down 12%
year to date WSJ survey shows
recession probability at
63% in next 12 months
OUTLOOK AND
STRATEGY
CITY TREASURER’S
OFFICE
5-Year Treasury Yields
Yields have jumped significantly in
the past year as the Fed attempts
to lower inflation to its 2% target
Fed Rate Hikes
With the Federal Reserve increasing
rates by another 75 bps in November,
rates have now risen faster than any
other time in recent history
The market expects the Fed to slow
the pace of its increases, with its
target rate peaking below 5% in 2023
IMF World Economic Outlook
Ongoing Strategy
• Credit monitoring of current holdings
• Comprehensive due diligence of new investmentsSafety
• Maintaining liquidity to take advantage of historically higher rates and to meet cash flow requirementsLiquidity • Tactical allocation and dollar cost averaging while
investing opportunistically during volatility
• Maximizing yield to protect against inflation
Yield
CITY TREASURER’S
OFFICE
Questions?
Krystle Palmer
City Treasurer
(818) 238-5880
[email protected]