Q2 FY25-26 Investment Review
City Council
February 17, 2026
Investment Policy Principles
Prudent Investor
Standard
#3
Yield
#2
Liquidity
#1
Safety
Our city’s investment policy is designed to provide guidelines for the prudent investment of all city cash balances with an absolute investment priority of safety, liquidity, and yield in that order
Q2 FY25-26 Investment Performance
• YTD Transactions: 8 purchases ($53 million) and 16 redemptions ($74 million) • Returns: Portfolio has generated $7.5 million in 6 months, which is $1.7 million higher than last year • Acceleration: Returns are accelerating on quarterly basis (3.63% YTD FY25-26 vs. 3.59% for Q1 FY25-26) • Roll-Offs: $50 million in pandemic era purchases with < 2% yield rolling-off across next 12 months
3.88%
3.08%
3.63%
18-Month
Index
FY24-25 PTD
FY25-26 YTD
Portfolio Return (%)
$18 $61
$133
$92
$86
$50
$440
Cash/CDs LGIP Agencies Corps Treasuries Supras Total
Sector Breakdown
Huntington Beach has ~$440M in investable reserves across short-term and long-term instruments at quarter- end, yielding a 3.63% return for this quarter and outperforming prior quarter and last year’s performance Long-Term Investment Performance
Huntington Beach’s net annual investment income has nearly quadrupled over the last 4 years and our effective quarterly rate of return has increased from 1.2% to 3.7% $3.5
$5.9
$10.0
$13.0
$15.0
FY22 FY23 FY24 FY25 FY26 (Est)
Net Annual Investment Income ($M)
1.22%
3.70%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
Portfolio Return (%)
FY23 FY24 FY25 FY26
Q2 FY25-26 Investment Portfolio Compliance
Both the bond and cash portions of the investment portfolio are in full compliance with our city’s Investment Policy and California General Code requirements
Overall bond portfolio
meets compliance
requirements for:
• Investment limits
• Issuer limits
• Maximum maturities
• Credit ratings (81% are
AAA or AA rated)
Overall cash/LGIP portfolio
meets compliance for:
• Investable limits
• Portfolio share
Current Cash/LGIP levels
would cover ~25% drop in
sales and property taxes for
18 months with a ~$19
million buffer
Q2 FY25-26 Investment Portfolio Concentration
Issuer concentration is nicely balanced within the investment portfolio, but there is an upside opportunity to rebalance portfolio sector weighting to capture incremental yield with very limited risk exposure • Issuer Concentration: Nicely balanced with only 10%+ concentrations in Treasuries, LGIP , and Federal Home Loan Bank (~40% of which matures in next six months) and only 11% of bonds being callable • Sectors: Current portfolio weighted toward Cash/LGIP , Treasuries, and Agencies but opportunity to rebalance with upcoming maturities and authorization of new broker/dealers for Huntington Beach Q2 FY25-26 Investment Portfolio Timeline
Recent Department of Justice actions regarding the Federal Reserve have increased the likelihood of an outsize rate drop in May-November 2026 that we may want to buffer against in our portfolio 44%
20%
16%
17%
3%
Portfolio Mix (%)
< 1 Year
1-2 Years
2-3 Years
3-4 Years
4-5 Years
4.36%
3.97%3.85% 3.57%
LGIP Money Market
Yield (%) Sept 30th
Jan 31st
• Financial Returns: Yields on ~40% the <1 Year investments has declined 35-50 basis point in just the last 3-4 months as funds re-ratchet rates to reflect the recent FMOC rate reductions with additional reductions likely • Yield Curve: The inverted curve has now flattened, making 3-5 years investments equally/more attractive • Opportunity: The city has a unique opportunity before May to lock-in 3-5 year returns for much of its portfolio 2026 Broker/Dealer Process and Results
We have completed our first comprehensive broker/dealer process in over a decade and significantly shifted our broker/dealer network to reduce fees and portfolio risk 1) Conducted robust due diligence on 10 broker/dealers – 3 incumbents and 7 new options 2) Exited two incumbents broker/dealers as they were not local and shifting risk to the city 3) Retained SAAS analytics program that is fully integrated with our ERP platform to keep costs low 4) Added six new broker/dealers, five of whom are local and two who are woman/veteran owned 5) New broker/dealers are all highly active in major gold-star treasury associations, generally have 20+ years of industry experience, and include chartered CFAs with higher fiduciary obligations 6) New brokers/dealers provide access to investment sectors offering higher yields than Treasuries without material incremental risk (e.g., asset-backed Agencies bonds) 7) New protocol will require triple bids for all trades to ensure city is securing lowest investment fees and require all broker/dealers to be re-certified each fiscal year Internal and External Initiative Updates
Beyond investment strategy, we are focused on deploying automation in cash collection/disbursement efforts and deploying community programming to help residents achieve their American Dream Internal Initiatives
▪ Deploy AI-based system to identify
unpermitted short-term rental operators
✓ Partner with bank to simplify processes via
electronic data feeds
✓ Complete collections process for dormant
citations issued during pandemic
✓ Comprehensive audits of hotel TOT payments
✓ Adopt technology to streamline collections
and increase administrative efficiencies
❑ Install self-service kiosks and QR codes to
facilitate electronic payments
External Initiatives
▪ Provide overview of Treasurer Office services
and solicit community feedback
▪ Partner with Police Department to expand tax,
investment, and identity scam classes
▪ Expand local access to free tax preparation
✓ Introduce workshops and 1-on-1 counseling
related to personal finances and investments
for seniors, working age adults, and youth
❑ Develop short-term rental operator trainings