City of Stockton
Investment Portfolio Update Presentation
February 7, 2023
City Council Meeting
Agenda Item 15.3
0 Professional Management of City’s Portfolio
▸ PFM Asset Management
▸ Chandler Asset Management
▸ City’s Liquidity Management: Bank, LAIF, CAMP
City’s Investment Policy
▸ Safety: Diversification & Credit Quality
▸ Liquidity: Duration & Interest Rate Risk
▸ Yield: Time Horizon & Yield Curve
Managing the City’s Cash Flows
▸ Timing of large cash outflows
▸ Liquidity in the portfolio to meet the needs
▸ Adequate positioning of funds to capitalize on market conditions Investment Management of Public Funds
1 Investment Program Snapshot
2 Program Summary
Reserve Portfolio $573,735,366
Yield at Cost 1.43%
Average Duration 2.25
Average Credit Quality AA
Short-Term Portfolio $109,922,916
Yield at Cost 3.09%
Average Duration 0.25
Average Credit Quality A-1
Overnight Accounts
BoW Main Account $60,400,763
CAMP Pool $40,584,621
Local Agency Investment Fund $55,000,000
Total Program $839,643,666
U.S.
Treasury
32%
Federal
Agency
16%
Agency MBS
1%Supranational
1%
Municipal
2%
Commercial Paper
7%
Negotiable
CD
7%
Corporate
14%
Asset-
Backed
1%
MMF
<1%
LAIF
7%
CAMP
5%
Cash
<1%
BoW
7%
Sector Allocation
22.3%
0.7%
2.6%
9.0% 8.7%
15.2%
21.9%
13.4%
3.6%
1.0% 1.7%
0.0%$0
$40
$80
$120
$160
$200
30 Days
and
Under
31 to 60
days
61 to 90
days
91 to 180
days
181 to 1
year
1 to 2
years
2 to 3
years
3 to 4
years
4 to 5
years
5 to 7
years
7 to 10
years
Over 10
years
Millions
Maturity Distribution
Pandemic
Responses
Consequences
The Pivot
Resetting
Expectations
A Look Back
Monetary stimulus
Fiscal stimulus
Healthcare mobilization
Supply chain challenges
Consumer demand for goods, then services
Soaring energy prices
Inflation
Fed starts aggressive series of rate hikes
Quantitative tightening begins
Forward expectations
Widespread re-pricing of financial assets
Expectations for slowing economic growth
Heightened vulnerability
1.5%
-5.3%
-9.5%
-18.1%-20%
-15%
-10%
-5%
0%
5%
Cash
1-5 Year
Gov/Corp A
or Better
Barclays U.S.
Bond
Aggregate S&P 500
2022 Asset Class Returns
Source: Bloomberg, as of December 31, 2022. 3
Recent Interest Rate Trends
Source: Bloomberg, as of 1/17/2023. 4
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
Jan 21
Jan 22
Jan 23
3-Month Treasury Yield
January 1, 2021 – January 17, 2023
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
Jan 21
Jan 22
Jan 23
10-Year Treasury Yield
January 1, 2021 – January 17, 2023
• Interest rates moved up sharply in 2022, in re sponse to Federal Reserve monetary policy, creating new opportunities for the City’s funds.
Opened Short-Term Portfolio in
March 2022; have continued to
roll short-term maturities,
capturing move up in rates
Began increasing Reserve
allocation to longer-maturity
securities in March 2022, as yield
moved above 2% for first time
since 2019
Looking Forward
5 Market Conditions
• Inflation expected to moderate in 2023
• Fed Funds rate expected to peak in the first half of 2023 • Interest rates may stabilize, trend lower in latter half of year • Expectations for a modest yet broad economic downturn Portfolio Strategy
• Continue to capture opportunities for enhan ced return in the City’s portfolios • Shift from shorter-term investments into longer-term, 5+ year, maturities • Regularly evaluate allocation between ov ernight funds and invested funds to maintain optimal allocation
• Maintain a strong sense of safety and risk management 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 please visit www.pfmam.com.
Disclaimer
6