QUARTERLY INVESTMENT
REPORT
City Council Meeting
March 4, 2005
Agenda Item 15.2
PFM Asset Management LLC
NOT FDIC INSURED : NO BANK GUARANTEE : MAY LOSE VALUE
March 4, 2025
415.393.7225
pfmam.com
City of Stockton
Portfolio Update Presentation to City Council
For Institutional Investor or Investment Professional
Use Only – This material is not for inspection by,
distribution to, or quotation to the general public
Monique Spyke, Managing Director
Justin Resuello, Institutional Sales and
Relationship Manager
A division of U.S. Bancorp Asset Management, Inc.
NOT FDIC INSURED : NO BANK GUARANTEE : MAY LOSE VALUE
Economic
Update
Results
The Pivot
Resetting
Expectations
A Look Back
Inflation progress slows
U.S. real gross domestic product continues its
upward trajectory
Steepened Treasury curve
Core CPI remained at 3.3% annualized
year-over-year
Exceptionally strong personal consumption
Inflation and labor markets end the year in
line with Fed expectations
Fed cut overnight rate by a total of 100
basis throughout 2024
Further rate cuts will depend on inflation
moving closer to its 2% target.
Expectation that the Fed will pause rate cuts
for some time
Potential policy implications as a result of
political uncertainty
3.41%
3.98%
4.81%
1-5 Year Fixed-Income Index
1-Year Return
5.49% 5.52%
0.0%
2.0%
4.0%
6.0%
U.S. Treasury
Agency
ABS
Corp A-AAA
Corp BBB
2.56%
Source: Bloomberg, as of December 31, 2024. 1
3.53%
1-10 Year Fixed-Income Index
1-Year Return
5.92%
4.16%
4.99%
0%
2%
4%
6%
U.S. Treasury
Agency
ABS
Corp A-AAA
Corp BBB
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
Jan-22
Jan-23
Jan-24
Jan-25
10-Year Treasury Yield
January 1, 2022 – January 31, 2025
-1.00%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
Jan-22
Jan-23
Jan-24
Jan-25
3-Month Treasury Yield
January 1, 2022-January 31, 2025
Recent Interest Rate Trends
Source: Bloomberg, as of 2/7/2025. 2
• Fed “dot plot” implies another 50 basis points of cuts in 2025, less than the 100 basis points previously projected in September
Investment Program Snapshot
Program Summary
Reserve Portfolio $459,505,110
Yield at Cost 3.78%
Average Duration 3.07
Average Credit Quality AA
Total1 $459,505,110
Maturity Distribution
Sector Allocation
U.S. Treasury | 53%
Agency CMBS | 20%
Corporate | 16%
ABS | 7%
Federal Agency | 3%
Negotiable CD | 1%
Municipal | 1%
$150
$100
$50
$0
Millions
1. Values of total portfolio holdings including accrued interest and cash. 3 Portfolio Benchmark
4.0%
3.0%
2.0%
1.0%
0.0%
-1.0%
-2.0%
Portfolio Performance
1. The lesser of 10 years or since inception is shown. Since inception returns for periods one year or less are not shown. Performance inception date is June 30, 2017.
2. Interest earned calculated as the ending accrued interest less beginning accrued interest, plus net interest activity.
3. Returns for periods one year or less are presented on a periodic basis. Returns for periods greater than one year are presented on an annualized basis.
4. The portfolio’s benchmark is currently 80% ICE BofA 1-5 Year AAA-A US Corporate & Government Index and 20% ICE BofA 5-10 Year US Treasury Index. Prior to 3/31/23 it was the ICE BofA 1-5 Year AAA-A US Corporate & Government Index . Source: Bloomberg Financial LP.
Market Value Basis Earnings 3 Months 1 Year 3 Years 5 Years Since Inception¹ Interest Earned² $3,745,826 $13,630,989 $27,604,677 $45,681,243 $66,664,085 Change in Market Value ($9,115,430) $1,225,422 ($20,505,891) ($21,787,881) ($15,134,609) Total Dollar Return ($5,369,604) $14,856,411 $7,098,786 $23,893,362 $51,529,476 Total Return³
Portfolio -1.15% 3.33% 0.96% 1.28% 1.69%
Benchmark⁴ -1.34% 3.04% 0.55% 1.00% 1.48%
4 3 Months 1 Year 3 Years 5 Years Since Inception
Return
Looking Forward
5 Market Conditions
• Inflation has fallen since its peak in 2022, progress has stalled in the past few months • Fed began its easing cycle with 100 basis points of rate cuts in 2024 • Fed has acknowledged higher inflation expectations going into 2025 and potential rate cuts depending on inflation moving closer to its 2% target
Portfolio Strategy
• Continue to capture opportunities for enhanced return in the City’s portfolios • Target portfolio duration to a neutral position relative to the benchmark • Regularly evaluate allocation between overnight funds and invested funds to maintain optimal allocation
• Maintain a strong sense of safety and risk management Disclaimer
▸ The views expressed within this material constitute the perspective and judgment of U.S. Bancorp Asset Management, Inc. at the time of distribution and are subject to change. Any forecast, projection, or prediction of the market, the economy, economic trends, and equity or fixed-income markets are based upon current opinion as of the date of issue and are also subject to change.
Opinions and data presented are not necessarily indicative of future events or expected performance. Information contained herein is based on data obtained from recognized statistical services, issuer reports or communications, or other sources, believed to be reliable. No representation is made as to its accuracy or completeness. ▸ PFM Asset Management serves clients in the public sector and is a division of U.S. Bancorp Asset Management, Inc., which is the legal entity providing investment advisory services. U.S. Bancorp Asset Management, Inc. is a registered investment adviser, a direct subsidiary of U.S. Bank N.A. and an indirect subsidiary of U.S. Bancorp. U.S. Bank N.A. is not responsible for and does not guarantee the products, services, or performance of U.S. Bancorp Asset Management, Inc. ▸ NOT FDIC INSURED : NO BANK GUARANTEE : MAY LOSE VALUE ▸For Institutional Investor or Investment Professional Use Only – This material is not for inspection by, distribution to, or quotation to the general public. 6 INVESTMENT REPORT
City of Stockton | As of December 31, 2024
CHANDLER ASSET MANAGEMENT | chandlerasset.com
Chandler Team:
For questions about your account, please call (800) 317-4747, or contact [email protected]
Information contained herein is confidential. We urge you to compare this statement to the one you receive from your qualified custodian. Please see Important Disclosures at the end of the statement. -400
-200
0 200
400
600
800
1,000
MOM Change In Thousands (000's)
Nonfarm Payroll (000's)
Non-farm Payroll (000's)
3-month average (000's)
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
Unemployment Rate
1 Underemployment Rate (U6)
Unemployment Rate (U3)
Rate (%)
The U.S. economy added 143,000 jobs in January, below consensus expectations, and the last two months were revised up by 100,000.
Gains were led by retail and health care. The three-month moving average and six-month moving average payrolls totaled 237,000 and 178,000 respectively. The unemployment rate declined to 4.0% in January, and the labor participation rate edged up to 62.6%, remaining below the pre-pandemic level of 63.3%. The U-6 underemployment rate, which includes those who are marginally attached to the labor force and employed part time for economic reasons remained unchanged at 7.5%. Average hourly earnings ticked up to an increase of
4.1% year-over-year in January.
Source: US Department of Labor Source: US Department of Labor
EMPLOYMENT
10.0%
9.0%
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
Consumer Price Index (CPI)
CPI YOY % Change
Core CPI YOY % Change
YOY (%) Change
10.0%
9.0%
8.0%
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
Personal Consumption Expenditures (PCE)
PCE Price Deflator YOY % Change
PCE Core Deflator YOY % Change
Fed Target
2 YOY (%) Change
In December, the Consumer Price Index (CPI) rose 0.4% month-over-month and 2.9% year-over-year. The Core CPI, which excludes volatile food and energy components, rose 0.2% month-over-month and 3.2% year-over-year, slowing from last month and coming in lower than consensus expectations. The Personal Consumption Expenditures (PCE) Index rose 0.3% from the previous month and 2.6% year-over-year in December versus a 2.4% increase in November. The Core PCE deflator (the Fed’s preferred gauge) increased 0.2% month-over-month and 2.8% over the past year. Although inflation has moderated, price increases remain above the Fed’s 2% target.
Source: US Department of Labor Source: US Department of Commerce
INFLATION
Source: Bloomberg Source: Bloomberg
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
US Treasury Note Yields
2-Year
5-Year
10-Year
Yield (%)
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
US Treasury Yield Curve
Jan-25
Oct-24
Jan-24
3 Yield (%)
At the end of January, the 2-year Treasury yield was 1 basis point lower, and the 10-Year Treasury yield was 63 basis points higher, year- over-year. The spread between the 2-year and 10-year Treasury yield points on the curve increased slightly to +34 basis points at January month-end versus +33 basis points at December month-end. The yield curve inversion which began in July 2022 was historically long. The average historical spread (since 2005) is about +99 basis points. The spread between the 3-month and 10-year Treasury yield points on the curve was +25 basis points in January, unchanged from December.
BOND YIELDS
PORTFOLIO CHARACTERISTICS
City of Stockton Reserve | Account #10020 | As of December 31, 2024 4 Benchmark* 12/31/2024
Portfolio
9/30/2024
Portfolio
Average Maturity (yrs) 2.66 2.98 3.14
Average Modified Duration 2.48 2.51 2.68
Average Purchase Yield 3.01% 2.99%
Average Market Yield 4.35% 4.49% 4.01%
Average Quality** AA+ AA+ AA+
Total Market Value 332,405,551 334,796,278
*Benchmark: ICE BofA 1-5 Year Gov/Corp A or better
**The credit quality is a weighted average calculation of the highest of S&P, Moody’s and Fitch.
SECTOR DISTRIBUTION
City of Stockton Reserve | Account #10020 | As of December 31, 2024 Sector as a Percentage of Market Value
5 Sector 12/31/2024 09/30/2024
US Treasury 41.19% 41.01%
Corporate 25.14% 25.26%
Agency 22.16% 22.32%
ABS 6.14% 5.70%
Agency CMBS 2.25% 2.27%
Neg CD 1.82% 1.81%
Muni Bonds 1.24% 1.43%
Money Mkt Fd 0.07% 0.20%
0-.25 .25-.5 .5-1 1-2 2-3 3-4 4-5 5-7 7+
Portfolio 7.3% 10.7% 12.3% 18.9% 12.8% 16.6% 9.6% 7.7% 4.2% ICE BofA 1-5 Year Gov/Corp A or better 0.0% 0.0% 2.4% 36.0% 26.7% 24.3% 10.7% 0.0% 0.0%
DURATION DISTRIBUTION
City of Stockton Reserve | Account #10020 | As of December 31, 2024 Portfolio Compared to the Benchmark
6 3 Months 12 Months 2 Years 3 Years 5 Years 10 Years Since Inception
TOTAL RATE OF RETURN
City of Stockton Reserve (0.70%) 3.79% 4.19% 2.80%
ICE BofA 1-5 Year Gov/Corp A or better (0.72%) 3.58% 4.03% 2.46% ICE BofA 1-5 Year Unsubordinated US Treasury & Agency Index (0.76%) 3.42% 3.86% 2.33% Net of Fees (0.71%) 3.76% 4.17% 2.77%
3 Months 12 Months 2 Years 3 Years 5 Years 10 Years Since Inception*
MARKET VALUE BASIS EARNINGS
Income Earned 8,965,960 8,965,960 14,738,437 16,568,875 16,568,875 26,731,540 29,341,692 Change in Market Value 11,453,835 50,271,393 45,843,336 45,843,336 205,396,108 271,905,208 TOTAL DOLLAR RETURN (319,471) 20,410,518 345,647,167 345,647,167 345,647,167 345,647,167 345,647,167
INVESTMENT PERFORMANCE
City of Stockton Reserve | Account #10020 | As of December 31, 2024 Total and Realized Rate of Return : Inception | 08/01/2022 7 *Periods over 1 year are annualized.
Total rate of return: A measure of a portfolio’s performance over time. It is the internal rate of return, which equates the beginning value of the portfolio with the ending market value; it includes interest earnings, realized and unrealized gains and losses in the portfolio. Realized rate of return: A measure of a portfolio’s return over time. It is the internal rate which equates the beginning book value of the portfolio with the ending book value; it includes interest earnings, realized gains and losses in the portfolio.
PORTFOLIO CHARACTERISTICS
City of Stockton Enhanced Cash | Account #11194 | As of December 31, 2024 8 Benchmark* 12/31/2024
Portfolio
9/30/2024
Portfolio
Average Maturity (yrs) 0.16 0.04 0.09
Average Modified Duration 0.15 0.04 0.08
Average Purchase Yield 4.27% 5.22%
Average Market Yield 4.26% 4.29% 4.84%
Average Quality** AA+ AAA AAA
Total Market Value 30,976,381 30,615,901
*Benchmark: ICE BofA 3-Month US Treasury Bill Index
**The credit quality is a weighted average calculation of the highest of S&P, Moody’s and Fitch.
IMPORTANT DISCLOSURES
City of Stockton | As of December 31, 2024
2024 Chandler Asset Management, Inc, An Independent Registered Investment Adviser.
Information contained herein is confidential. Prices are provided by ICE Data Services Inc (“IDS”), an independent pricing source. In the event IDS does not provide a price or if the price provided is not reflective of fair market value, Chandler will obtain pricing from an alternative approved third party pricing source in accordance with our written valuation policy and procedures. Our valuation procedures are also disclosed in Item 5 of our Form ADV Part 2A.
Performance results are presented gross-of-advisory fees and represent the client’s Total Return. The deduction of advisory fees lowers performance results. These results include the reinvestment of dividends and other earnings. Past performance may not be indicative of future results. Therefore, clients should not assume that future performance of any specific investment or investment strategy will be profitable or equal to past performance levels. All investment strategies have the potential for profit or loss. Economic factors, market conditions or changes in investment strategies, contributions or withdrawals may materially alter the performance and results of your portfolio.
Index returns assume reinvestment of all distributions. Historical performance results for investment indexes generally do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment management fee, the incurrence of which would have the effect of decreasing historical performance results. It is not possible to invest directly in an index.
Source ICE Data Indices, LLC (“ICE”), used with permission. ICE permits use of the ICE indices and related data on an “as is” basis; ICE, its affiliates and their respective third party suppliers disclaim any and all warranties and representations, express and/or implied, including any warranties of merchantability or fitness for a particular purpose or use, including the indices, index data and any data included in, related to, or derived therefrom. Neither ICE data, its affiliates or their respective third party providers guarantee the quality, adequacy, accuracy, timeliness or completeness of the indices or the index data or any component thereof, and the indices and index data and all components thereof are provided on an “as is” basis and licensee’s use it at licensee’s own risk. ICE data, its affiliates and their respective third party do not sponsor, endorse, or recommend chandler asset management, or any of its products or services.
This report is provided for informational purposes only and should not be construed as a specific investment or legal advice. The information contained herein was obtained from sources believed to be reliable as of the date of publication, but may become outdated or superseded at any time without notice. Any opinions or views expressed are based on current market conditions and are subject to change. This report may contain forecasts and forward-looking statements which are inherently limited and should not be relied upon as indicator of future results. Past performance is not indicative of future results. This report is not intended to constitute an offer, solicitation, recommendation or advice regarding any securities or investment strategy and should not be regarded by recipients as a substitute for the exercise of their own judgment.
Fixed income investments are subject to interest, credit and market risk. Interest rate risk: the value of fixed income investments will decline as interest rates rise. Credit risk: the possibility that the borrower may not be able to repay interest and principal. Low rated bonds generally have to pay higher interest rates to attract investors willing to take on greater risk. Market risk: the bond market in general could decline due to economic conditions, especially during periods of rising interest rates.
Ratings information have been provided by Moody’s, S&P and Fitch through data feeds we believe to be reliable as of the date of this statement, however we cannot guarantee its accuracy.
Security level ratings for U.S. Agency issued mortgage-backed securities (“MBS”) reflect the issuer rating because the securities themselves are not rated. The issuing U.S. Agency guarantees the full and timely payment of both principal and interest and carries a AA+/Aaa/AAA by S&P, Moody’s and Fitch respectively. 9 BENCHMARK DISCLOSURES
City of Stockton | As of December 31, 2024
10 Benchmark Disclosure
ICE BofA 3-Month US Treasury Bill Index
The ICE BofA US 3-Month Treasury Bill Index is comprised of a single issue purchased at the beginning of the month and held for a full month. At the end of the month that issue is sold and rolled into a newly selected issue. The issue selected at each month- end rebalancing is the outstanding Treasury Bill that matures closest to, but not beyond, three months from the rebalancing date.
ICE BofA 1-5 Year Gov/Corp A or better
The ICE BofA US Issuers 1-5 Year AAA-A US Corporate & Government Index tracks the performance of US dollar denominated investment grade debt publicly issued in the US domestic market, including US Treasury, US agency, foreign government, supranational, and corporate securities. Qualifying securities must be issued from US issuers and be rated AAA through A3 (based on an average of Moody’s, S&P and Fitch). In addition, qualifying securities must have at least one year remaining term to final maturity and less than five years remaining term to final maturity, at least 18 months to final maturity at point of issuance, a fixed coupon schedule, and a minimum amount outstanding of $1 billion for US Treasuries and $250 million for all other securities.
ICE BofA 1-5 Yr US Treasury & Agency Index
The ICE BofA 1-5 Year US Treasury & Agency Index tracks the performance of US dollar denominated US Treasury and nonsubordinated US agency debt issued in the US domestic market. Qualifying securities must have an investment grade rating (based on an average of Moody’s, S&P and Fitch). Qualifying securities must have at least one year remaining term to final maturity and less than five years remaining term to final maturity, at least 18 months to maturity at time of issuance, a fixed coupon schedule, and a minimum amount outstanding of $1 billion for sovereigns and $250 million for agencies.