INVESTMENT
PORTFOLIO
REPORT FOR
JUNE 30, 2023
CITY COUNCIL
September 12, 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
$560
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 Oct-22 Nov-22 Dec-22 Jan-23 Feb-23 Mar-23 Apr-23 May-23 Jun-23 City Investment Pool Combined Successor Agency and Housing Authority Historical Market Value
$553 M
$9 M
(in millions)
$42 M
CALPERS
payment
$45 M
CALPERS
payment
Portfolio Market Value by Asset Class
Portfolio Market Value
$ 553 M
Negotiable Certificates of Deposit, $39M
7%
Corporates - Medium
Term Notes, $87M
16%
Money Market, $109M
20%
Municipal Bonds, $63M
11%
Supranational Obligations, $22M
4%
US Agency, $206M
37%
US Treasury Notes, $28M
5%
Compliance – Portfolio Allocation
ASSET CLASS MARKET
VALUE PORTFOLIO % LEGAL MAXIMUM POLICY LIMITS COMPLIANCE Negotiable CDs $ 39 M 7% 30% 0 to 30%
LAIF $ 0 M 0% $75 M per
account
$75 M per
account
Corporates –
Medium Term Notes $ 87 M 16% 30% 0 to 30%
Money Market $ 109 M 20% 20% 0 to 20%
Municipal Bonds $ 63 M 11% No limit 0 to 30%
Supranational
Obligations $ 22 M 4% 30% 0 to 15%
US Agency $ 206 M 37% No limit 0 to 90%
US Treasury $ 28 M 5% No limit 0 to 100%
$53
$69
$88
$189
$46
$109
$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
2.15 years
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
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
May-23
Portfolio Yield 2-Year Treasury 12-Month Rolling Average LAIF Average Monthly Yield Yield
3.17%
4.18%
3.13%
With the yield curve still inverted,
we continue to invest in short-term
liquid securities, while also locking
in 5-year yields to protect against
an eventual rate downturn.
$0
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$1,400,000
$1,600,000
Income Summary
$1.4 M
in June 2023
Interest Income
ESG Investments Spotlight
Certificate of Deposit (CD) from California Credit Union (Glendale) • Serves around 100 small businesses in Burbank
• Provided hundreds of thousands of dollars in SBA PPP loans to businesses in Burbank during Covid
• Community sponsor of the Burbank Arts and Education Foundation • Education is one of primary focus areas - provided $395,000 in college scholarships to local students since 2005 (including students from Burbank High School) and awarded $175,000 in teacher grants to fund innovative local class projects since 2012 (including funding grants for teachers at St. Francis Xavier School and John Muir Middle School) • Certified as CDFI - donated $700,000+ in 2022 to support local schools, educators, military families & community programs
• City of Burbank invested in 2-year CD yielding 5.4%
ECONOMIC
CONDITIONS
CITY TREASURER’S
OFFICE
Labor Market
As companies offer more flexibility,
the employment rates for women as
well as those with disabilities have
increased to all-time highs.
Rising wages, job opportunities, and
the impact of inflation have driven
older Americans to return to work.
Savings and Debt
Median deposit balances are still at
least 30% higher in July 2023 than
they averaged in 2019, with the
highest relative growth among lower
income households.
Even as credit card debt and auto
loans are now above pre-pandemic
levels, total delinquency rates, while
escalating, are still relatively low.
Consumer Sentiment and Spending
A stable job market and the
slowdown in inflation fueled
consumer optimism to its highest
levels in two years.
US retail sales rose higher than
expected at 0.7% in July, compared
to the previous month
While the July inflation numbers
came in lower than expected, it was
a slight increase from June’s number.
Inflation
Since February 2020, when the
pandemic began, the cost of food at
home is still up more than 23%.
Sample Categories with Notable Year-Over-Year Changes (July 2023) With drought and inflation,
US beef production now on
track to see its largest annual
decline in 44 years
Housing Market
Even with ~7% mortgage rates, home
prices rose 4.5% YoY as the total
number of homes for sale dropped
18% YoY this past month.
California has historically had the
lowest housing turnover rates due to
Prop 13, and low mortgage rates
have further incentivized staying put.
14 of every 1,000 homes
changed hands in 2023,
compared to 19 of every
1,000 in 2019.
California metro areas
turnover rate
~6 to 9 in 1,000
Asset Prices and Recession Probability
S&P just off 6% from
all-time high
Bond prices just down
14% from all-time high Economists are now projecting a
54% probability of a recession,
down from 61%
OUTLOOK AND
STRATEGY
CITY TREASURER’S
OFFICE
5-Year Treasury Yields
5-Year Treasury yields have
recently hit a 16-year high as
markets fear that rates would
remain elevated for some time.
Fed Rate Hikes
After lifting rates in July, the Federal
Reserve is now expected to pause
rate hikes in September as they wait
to get more clarity on the economy
The debate has now shifted from
“how high” rates should go to “how
long” rates should stay elevated.
Soft Landing?
No Recession
(no GDP contraction for
more than a few months)
+
Strong Job Market
(low unemployment <4%)
+
Lower Inflation (~2%)
=
Soft Landing
Ongoing Risks
Inflation
• Strong labor market (avg hourly
earnings +4.3% annually in August)
• Continuing impact of war in
Ukraine on food and energy prices
• Strong consumer demand gives
businesses pricing power
• Higher interest rates minimal
impact on those with no debt or
with low fixed interest payments
• Shift in spending mindset
Economic Stability
• Credit downgrades for the US,
banks, and other sectors
• Higher refinancing costs for
corporate debt
• Rise in corporate bankruptcies
• Commercial real estate values
• US-China decoupling strategy
• Overall movement away from free
trade policies
IMF World Economic Outlook
Continuing Strategy
• Ongoing 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
• Locking in longer-term rates for future income
Yield
CITY TREASURER’S
OFFICE
Questions?
Krystle Palmer
City Treasurer
(818) 238-5880
[email protected]