INVESTMENT
PORTFOLIO
REPORT FOR
JUNE 30, 2024
City Council
September 24, 2024
CITY TREASURER’S
OFFICE
• Portfolio Overview
• Economic Conditions
• Outlook and Strategy
CITY TREASURER’S
OFFICE
PORTFOLIO
OVERVIEW
CITY TREASURER’S
OFFICE
$400
$450
$500
$550
$600
$650
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 Jul-23 Aug-23 Sep-23 Oct-23 Nov-23 Dec-23 Jan-24 Feb-24 Mar-24 Apr-24 May-24 Jun-24 City Investment Pool Combined Successor Agency and Housing Authority Historical Market Value
$648 M
$4 M
(in millions)
$44 M
CALPERS
payment
$32 M
CALPERS
payment
4 Portfolio Market Value by Asset Class
Portfolio Market Value
$ 648 M
5 Negotiable Certificates of Deposit, $55M
8%
Joint Powers Authority Pool, $133
20%
Corporates - Medium Term Notes, $101M
16%
Money Market, $37M
6%
Municipal Bonds, $71M
11%
Supranational Obligations, $28M
4%
US Agency, $200M
31%
US Treasury Notes, $23M
4%
Compliance – Portfolio Allocation
ASSET CLASS MARKET
VALUE PORTFOLIO % LEGAL MAXIMUM POLICY LIMITS COMPLIANCE Negotiable CDs $ 55 M 8% 30% 0 to 30%
Joint Powers
Authority Pool $ 133 M 20% No limit 0 to 25%
Corporates –
Medium Term Notes $ 101 M 16% 30% 0 to 30%
Money Market $ 37 M 6% 20% 0 to 20%
Municipal Bonds $ 71 M 11% No limit 0 to 30%
Supranational
Obligations $ 28 M 4% 30% 0 to 15%
US Agency $ 200 M 31% No limit 0 to 90%
US Treasury $ 23 M 4% No limit 0 to 100%
6 $67
$97
$193
$56 $65
$170
$0
$50
$100
$150
$200
$250
0-1 Year 1-2 Years 2-3 Years 3-4 Years 4-5 Years
Maturity Range
Money Market /
Joint Powers Authority Pool
City
Investment
Pool
(in millions)
Portfolio Duration
1.72 years
7 0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
5.00%
Portfolio Yield 2-Year Treasury 12-Month Rolling Average LAIF Average Monthly Yield Yield
4.48%
4.74%
3.58%
With the beginning of rate cuts,
while we continue to take
advantage of higher yields on the
short end, we are also locking in
rates for future income.
8 -$100,000
$100,000
$300,000
$500,000
$700,000
$900,000
$1,100,000
$1,300,000
$1,500,000
$1,700,000
$1,900,000
Income Summary
$1.8 M
in June 2024
Interest Income
9 ESG Investments Spotlight
Rize Credit Union
• Headquartered in Boyle Heights
• Founded in 1952 by members of IBEW Local 47
• Vision is to “ultimately work toward ending poverty.” • Provides immigrants with citizenship classes
• Early Payday program gives members access to eligible direct deposits up to two days early, with no enrollment required and no fees • Founded non-profit Center for Financial Empowerment with goal of breaking the cycle of poverty by providing local high schools personal finance workshops, youth saving incentives, and college scholarships • Partners with more than 50 community-based organizations, including the YMCA, LA County foster youth program, and the Mexican consulate • City of Burbank invested in 5-year Certificate of Deposit yielding 4.25% 10 ECONOMIC
CONDITIONS
CITY TREASURER’S
OFFICE
Job Market
While the labor market has softened
compared to previous years and
companies slow to hire, layoffs and
the unemployment rate remain low.
In line with pre-pandemic levels, the
growth of average hourly earnings
has moderated to 3.8% annualized,
still outpacing inflation. 12
Unemployment
rate at 4.2%
Immigration and the Labor Force
Beginning 2021, more than 9 million
people have migrated to the US,
nearly as many as those who came in
the previous decade.
Recent immigrants tend be younger
and looking for work, adding ~3% to
the total labor force.
13 Women in the Labor Force
With the pandemic’s resulting
remote work policies, the percent of
women in the labor force recently hit
an all-time high.
While US women are still less likely
to be employed compared to peers
abroad, a record number of women
with kids under 6 now work. 14
1.9 million more
women in the
workforce compared
to 5 years ago
Savings
However, funds have not necessarily
been spent as households have
increasingly invested in CDs, money
market funds, and stocks. 15
Median deposit balances remain
above pre-pandemic levels, but have
declined to their lowest since then.
Consumer Sentiment
Consumer optimism recently grew to
its highest level since 2022, with
people reporting higher intent to
spend across most categories.
While most consumers report
“trading down”, a growing share also
intend to splurge more in 2024
compared to last year. 16
Debt
The delinquency rate is also lower
than pre-pandemic averages. Third-
party collection activity continue to
be at record lows.
Total household debt as a share of
disposable income continues to trend
below historical averages. 17
Inflation
Inflation at 2.5% is now at its lowest
point in three years, but prices have
just plateaued and are still noticeably
higher than pre-pandemic levels.
Consumers are increasingly tapped
out and are now looking for value,
forcing businesses to offer deals. 18
Grocery prices have
risen 25.5% since the
start of the pandemic.
Housing Market - Sales
19 With limited new construction and
homeowners financially motivated to
stay put, the low supply of homes for
sale keeps prices high.
With higher prices and interest rates,
the growth in monthly payments to
buy a home has outpaced the growth
in both wages and rent costs.
Housing Market - Rentals
A surge in supply and higher vacancy
rates have resulted in the decline of
average US rents for the last
12-month period.
While a record number of rental
units will be delivered this year, high
financing costs and investment
uncertainties are deterring growth. 20
Burbank
median rents
down 0.2% YoY
Asset Prices and Recession Probability
S&P 500 recently hit
a record high
Analysts still put the probability
of a recession relatively low at
around 25 to 35%, given stable
economic indicators.
21 The US dollar also
remains relatively strong
OUTLOOK AND
STRATEGY
CITY TREASURER’S
OFFICE
5-Year Treasury Yields
5-year Treasury yields have come
down from their recent highs
with the anticipation of rate cuts
that began this month.
23 Fed Rate Cuts
24 The Fed cut rates by 50 bps in its
recent meeting, citing that “job gains
have slowed”, while inflation has
made further progress toward 2%.
The Fed’s dot plot suggests it expects
two more rate cuts this year,
followed by four more cuts in 2025.
Election Economic Wildcards
25 • Higher child tax credits!
• Tax credits for homebuyers!
• No taxes on tips!
• No taxes on social security!
• Raise marginal tax rates!
• Lower corporate taxes!
• Tax unrealized gains!
Taxes
• Increase tariffs on Chinese
imports!
• Impose tariffs on imports
from all countries!
Tariffs
• Price gouging ban on
food/groceries!
• Federal rent control!
Price
Controls
Budget Deficits?
Inflation?
More Jobs?
Supply Shortages?
Lower Prices?
IMF World Economic Outlook
26 Continuing Strategy
• Ongoing credit monitoring of portfolio holdings
• Comprehensive due diligence of new investmentsSafety
• Maintaining adequate liquidity to meet both
anticipated and unexpected cash flow needsLiquidity
• Taking advantage of higher short-term yields
• Locking in long-term rates to generate future incomeYield 27 Intel
28 Intel
Purchase Date 2/8/2021
Maturity Date 3/25/2025
Total Cost of Investment -$2,239,382
Current Sell Price as of 9/5/2024 $1,975,000
Net Loss if Sold -$264,382
Total Interest Received since Purchase $238,000
Net Loss from Investment if Sold -$26,382
Additional Interest from Reinvestment
at 5% Rate Until Maturity $17,380
Total Net Loss if Sold -$9,002
• Intel downgraded by both Moody’s and
S&P in August to Baa1/BBB+ (lower
investment grade) with negative outlook
• Weaker revenue and earnings in next
few years due to market share losses,
slow demand, and high costs
• Plans to cut over $10 B in costs in 2025
including capital spending cuts, dividend
suspension, real estate divestments, and
cutting 15,000 jobs
• Possible $8.5 B grant from US Chips Act,
and $3 B to manufacture military chips
• Stock down 34% in last 12 months
• Considerable liquidity with $35 billion in
cash
CITY TREASURER’S
OFFICE
Questions?
Krystle Palmer
City Treasurer
(818) 238-5880
[email protected]