INVESTMENT
PORTFOLIO
REPORT FOR
MARCH 31, 2023
CITY COUNCIL
May 23, 2023
CITY TREASURER’S
OFFICE
• Portfolio Overview
• Economic Conditions
• Outlook and Strategy
CITY TREASURER’S
OFFICE
PORTFOLIO
OVERVIEW
CITY TREASURER’S
OFFICE
$400
$420
$440
$460
$480
$500
$520
$540
City Investment Pool Combined Successor Agency and Housing Authority Historical Market Value
$549 M
$3 M
(in millions)
$42 M
CALPERS
payment
$45 M
CALPERS
payment
Portfolio Market Value by Asset Class
Portfolio Market Value
$ 549 M
Negotiable Certificates of Deposit, $22M
4%
Corporates - Medium
Term Notes, $105M
19%
Money Market, $105M
19%
Municipal Bonds, $65M
12%
Supranational Obligations, $22M
4%
US Agency, $207M
38%
US Treasury Notes, $23M
4%
Compliance – Portfolio Allocation
ASSET CLASS MARKET
VALUE PORTFOLIO % LEGAL MAXIMUM POLICY LIMITS COMPLIANCE Negotiable CDs $ 22 M 4% 30% 0 to 30%
LAIF $ 0 M 0% $75 M per
account
$75 M per
account
Corporates –
Medium Term Notes $ 105 M 19% 30% 0 to 30%
Money Market $ 105 M 19% 20% 0 to 20%
Municipal Bonds $ 65 M 12% No limit 0 to 30%
Supranational
Obligations $ 22 M 4% 30% 0 to 15%
US Agency $ 207 M 38% No limit 0 to 90%
US Treasury $ 23 M 4% No limit 0 to 100%
$65 $61
$75
$187
$56
$105
$0
$20
$40
$60
$80
$100
$120
$140
$160
$180
$200
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
2.17 years
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
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
Nov-22
Jan-23
Mar-23
Portfolio Yield 2-Year Treasury 12-Month Rolling Average LAIF Average Monthly Yield Yield
2.83%
3.76%
2.91%
With our laddering strategy, our
portfolio has been able to
withstand volatile rate
environments to generate
consistent and stable returns
$0
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$1,400,000
$1,600,000
Income Summary
$1.3M
in March 2023
Interest Income
ESG Investments Spotlight
Certificates of Deposit (CDs) from Credit Unions that are Certified as Community Development Financial Institutions (CDFIs)
• CDFI Certification is the U.S. Treasury’s recognition of specialized financial institutions serving low-income communities – providing both financial and educational services, while serving defined target markets • Examples of recent purchases include
• Latino Community Credit Union (18-month CD yielding 5%) • 97% of loans to Latinos and immigrants
• 65% of members are previously unbanked
• 99.3% repayment rate
• Vystar Credit Union (5-year CD yielding 4.45%)
• Serving the needs of military service members and their families • Military Heroes Mortgage Program – flexible downpayment options
Swap of US Bank Holdings
US Bancorp 2.844% US Bancorp 2.38%
Purchase Date 4/15/2019 7/31/2019
Maturity Date 2/5/2024 7/30/2024
Total Cost of Investment -$1,030,307.25 -$3,002,990
Current Sell Price as of 5/18/2023 $993,031.25 $2,891,900 Net Loss on Sale -$37,276 -$111,090
Total Interest Received since Purchase $135,093.75 $252,200 Net Gain from Investment $97,817.75 $141,110
Additional Interest from Reinvestment
at 5% Rate Until Maturity $15,368 $90,921
Total Net Gain $113,186 $232,031
ECONOMIC
CONDITIONS
CITY TREASURER’S
OFFICE
Labor Market
Job openings declined in Q1 as
recession fears discourage employers
from hiring. Layoffs have also ticked
up as employers take the
opportunity to cut costs
Prime-age (25-54) labor force
participation increased to 83.3% in
April, the highest since 2008.
Unemployment dropped to 3.4%,
matching the lowest since 1969
Savings and Debt
Average hourly earnings increased
4.4% in April from the previous year.
While the Personal Savings Rate has
inched up to 5.1%, it is still below the
historical average of ~8%
Credit card delinquencies are still at
historic lows, although they have
increased from the pandemic for
young adults, even as student loan
payments are still paused
<5% delinquency
for those age 40+
Consumer Spending
Consumer spending on experiences
continue to see elevated growth YoY
(in Feb, +42.7% on lodging, +15.6%
on airlines, +14.2% on restaurants)
46% of consumers have used Buy
Now, Pay Later plans to fuel
purchases, but 51% have regretted
using the service
Even as energy and commodity prices
have decreased, pricing power has
driven companies to maintain high
prices to boost profits
Inflation
While some prices have moderated
recently, there is now a risk that
inflation may become entrenched as
people adjust their expectations
Sample Categories with Notable Year-Over-Year Increases/Declines (April 2023) CPI at 4.9% in April
Olive Oil +46%
from last year
Housing Market
With new listings down 24%, a lack
of inventory has limited the decline
in home prices despite record high
average monthly mortgage payments
Young adults took advantage of low
mortgage rates, remote work, and a
strong job market to buy homes
during the pandemic
Gen Z homeowners spent
the same portion (16%) of
their income on housing in
2021 as those in 1990
Average 30-year fixed
mortgage rate at 6.39%
Rental Market
LA rent prices are ranked #18th out
of the largest 100 cities, but median
rent prices in LA are now down about
0.6% year over year
Burbank ranked #21st out of 27 Los
Angeles metro cities for median
2BR rents in April 2023
(ranked #24th for 1 BR rents)
Asset Prices and Recession Probability
S&P just off 13% from
all-time high
Bond prices just down
13% from all-time high
WSJ survey shows
recession probability at
61% in next 12 months
OUTLOOK AND
STRATEGY
CITY TREASURER’S
OFFICE
5-Year Treasury Yields
Yields have dropped from their
recent highs as inflation has
moderated and the market now
expects the Fed may pause hikes
Fed Rate Hikes
In just 14 months, the Fed funds rate
has risen almost 5%, the fastest pace
in history, exceeding expectations
While the Fed has indicated it will
likely need to hold rates high for
some time, the market believes rate
cuts will happen later this year
Survey of Risks to U.S. Financial Stability
+Debt Ceiling
Crisis!
+Increase in
Corporate
Bankruptcies!
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]