PFM Asset Management LLC
NOT FDIC INSURED : NO BANK GUARANTEE : MAY LOSE VALUE
PFM Asset Management LLC
NOT FDIC INSURED : NO BANK GUARANTEE : MAY LOSE VALUE
Monique Spyke
Managing Director
PFM Asset Management LLC
City of Hayward
415.393.7270
pfmam.com
November 16, 2022
Annual Investment Update
Fiscal Year 2021-2022
For Institutional Investor or Investment Professional
Use Only – This material is not for inspection by,
distribution to, or quotation to the general public
ATTACHMENT II
Market Update
▸ The U.S. economy is characterized by:
▹ High inflation
▹ Deteriorating housing market
▹ Depressed consumer confidence
▹ Worsening economic outlook that is propped up by a strong labor market ▸ The Federal Reserve has committed to a heavy-handed policy ▹ More aggressive rate hikes to battle persistent inflation ▹ Short-term fed funds rate projected to reach near 4.50% by year-end ▹ Increased pace of quantitative tightening
▸ Asset prices have fallen sharply in 2022 as a result of:
▹ The impact of higher rates on bond prices and equity valuations ▹ Wider credit spreads
▹ High levels of volatility and uncertainty
Current Market Themes
1 Inflation Was a Primary Driver of Fed Activity
Source: Bloomberg, as of August 2022. 2
-4%
-2%
0%
2%
4%
6%
8%
10%
Dec-19 Jun-20 Dec-20 Jun-21 Dec-21 Jun-22
Factors Contributing to the Consumer Price Index (CPI YoY) Services (Ex Food & Energy) Goods (Ex Food & Energy) Food Energy Headline YoY% Yields Have Moved Sharply Higher
3Source: Bloomberg.
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
3-month
1-year
2-years
3-years
4-years
5-years
U.S. Treasury Yield Curves
+2.70%
+2.13%
June 30, 2022
June 30, 2021
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
Jun 2017
Jun 2018
Jun 2019
Jun 2020
Jun 2021
Jun 2022
2-Year Treasury Yield
June 30, 2017 – June 30, 2022
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
Fed Participants’ Assessments of ‘Appropriate’ Monetary Policy Jun-22 FOMC Projections
Jun-22 Median
Federal Reserve Officials Project 1.75% More in
Rate Hikes in 2022
Source: Federal Reserve and Bloomberg. Individual dots represent each Fed members’ judgement of the midpoint of the appropriate target range for the federal funds rate at each year-end.
2022 Longer Term2023 2024
4 ICE BofA 1-5 Year
Treasury IndexSurging Yields Gave Back Pandemic Gains
5Source: ICE BofAML Indices via Bloomberg, as of 6/30/2022; PFMAM calculations. 2022 Price, income, and total return is YTD as of 6/30/2022.
AgendaFY21-22
In Review
➢ Overall economic activity was robust in 2021,
supported by massive levels of monetary support
by the Federal Reserve (Fed) and numerous
rounds of fiscal support from Congress to combat
the effects of the pandemic.
➢ Rising inflation became a major issue for the
economy.
➢ Interest rates climbed at the fastest pace seen in
recent history. The yield on two-year Treasury
notes rose from 0.28% last September, to 0.73%
by year end, and reached 2.96% at the end of June
2022.
KEY TAKEAWAYS
6 Investment Program
Highlights
Hayward’s Investment Objectives
City of Hayward Statement of Investment Policy. 7
Safety
➢High quality
investments
➢Management of
credit and market
risk
Liquidity
➢Cash flow
coordination with
the staff
➢Allocation to
overnight funds
Yield
➢Duration
management
➢Active trading and
continual
evaluation of
relative value
among allowable
sectors
Diversification
➢Diversification by
sector, issuer, and
maturity
Working Well in Current Interest Rate Environment – Ready to Adapt to Changing Conditions The City's Strategy at a Glance
Aggregate Portfolio Statistics
Total Market Value $177,853,953
Average Duration 2.51 years
Average Yield at Cost 1.10%
Average Yield at Market 3.14%
• Calculated based on market value, as of June 30, 2022. • Percentages may not total 100% due to rounding.
63%
1%
10% 11%
7% 8%
$0
$50
$100
$150
$200
$250
$300
$350
Overnight Under 1
Year
1 - 2 Years 2 - 3 Years 3 - 4 Years 4 - 5 Years
Millions
Maturity Distribution
8 The City’s Strategy at a Glance
• Calculated based on market value, as of June 30, 2022. • Percentages may not total 100% due to rounding.
• Ratings provided by Standard & Poor’s.
• “Not Rated” category comprises securities that were rated in the category of “A” or better by at least one NRSRO at the time of purchase. • Excludes the City’s LGIP, cash, and money market fund balances. ➢ The portfolio is well diversified among U.S. Treasuries, Federal Agencies, Supranational Agencies, Negotiable Certificates of Deposit (CDs), Corporate Notes, Asset-Backed Securities, and Municipal Obligations.
➢ The portfolio comprises securities of high credit quality.
Credit Quality - S&P
AAA| 5%
AA+ | 71%
AA | 3%
AA- | 2%
A-1+ | <1%
A+ | 4%
A | 5%
A- | 6%
A-1 | 1%
BBB+ | 2%
Not Rated | 2%
U.S. Treasury | 60%
Corporate | 21%
Federal Agency | 7%
Municipal | 5%
ABS | 3%
Agency CMBS | 2%
Supranational | 1%
Negotiable CD | 1%
Sector Allocation
9 Performance
As of June 30, 2022
• Performance on a trade-date basis, gross (i.e., before fees). • LGIP and cash excluded from performance calculations. • Past performance is not indicative of future returns. Quarterly returns are presented on an unannualized basis. Returns for periods greater than one year are presented on an annualized basis.
• Since inception date September 30, 2012. The portfolio’s benchmark is currently the ICE BofAML 1-5 Year U.S. Treasury Index. Prior to 12/31/21 it was the ICE BofAML 1-3 Year U.S. Treasury Index. Source: Bloomberg.
Combined Portfolio Performance
2Q22 -0.89%
FY 21-22 -4.37.%
Since Inception 0.79%
Historical Performance
-5.00%
-4.00%
-3.00%
-2.00%
-1.00%
0.00%
1.00%
2.00%
1 Year 3 Year 5 Year Since Inception
Portfolio Performance Benchmark
10 2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
Fed Participants’ Assessments of ‘Appropriate’ Monetary Policy Sep-22 FOMC Projections
Sep-22 Median
11 Federal Reserve Officials Project Elevated Rates
Through the End of 2023
Source: Federal Reserve and Bloomberg. Individual dots represent each Fed members’ judgement of the midpoint of the appropriate target range for the federal funds rate at each year-end.
2022 Longer Term2023 2024
Outlook
12 KEY TAKEAWAYS
➢ Fed to continue raising interest rates in
2022 to combat high inflation
➢ Economic growth expectations have moved
lower, along with consumer sentiment
➢ Consumer balance sheets are healthy
enough to weather the record-breaking
inflation
RISKS TO OUTLOOK
➢ Continued aggressive monetary policy
tightening
➢ Increased probability of recession
➢ Continued high inflation
➢ Risk of Covid resurgence
PORTFOLIO STRATEGY
➢ Carefully manage risk and maintain high
credit quality
➢ Reduce market value risk by limiting
allocation to 4- to 5-year maturities
➢ Continue to diversify the portfolio to safely
increase earnings potential
➢ Explore opportunities for liquidity
➢ Adjust strategy as needed to address
changing needs of the portfolio
Disclaimer
Investment advisory services are provided by PFM Asset Management LLC (“PFMAM”), an investment adviser registered with the U.S. Securities and Exchange Commission and a subsidiary of U.S. Bancorp Asset Management, Inc. (“USBAM”). USBAM is a subsidiary of U.S. Bank National Association (“U.S.
Bank”). U.S. Bank is a separate entity and subsidiary of U.S. Bancorp. U.S. Bank is not responsible for and does not guarantee the products, services or performance of PFMAM.The information contained is not an offer to purchase or sell any securities. Additional applicable regulatory information is available upon request.
For more information regarding PFMAM’s services or entities, please visitwww.pfmam.com.
Disclaimer
Investment advisory services are provided by PFM Asset Management LLC (“PFMAM”), an investment adviser registered with the U.S. Securities and Exchange Commission and a subsidiary of U.S. Bancorp Asset Management, Inc. (“USBAM”). USBAM is a subsidiary of U.S. Bank National Association (“U.S.
Bank”). U.S. Bank is a separate entity and subsidiary of U.S. Bancorp. U.S. Bank is not responsible for and does not guarantee the products, services or performance of PFMAM.The information contained is not an offer to purchase or sell any securities. Additional applicable regulatory information is available upon request.
For more information regarding PFMAM’s services or entities, please visitwww.pfmam.com. 13