The School District of Brevard County Market Update and Portfolio Review May 25, 2010

Transcription

1 The School District of Brevard County Market Update and Portfolio Review May 25, 2010 Asset Management LLC Presented By: Steven Alexander, Managing Director 300 South Orange Avenue, Suite 1170 Orlando, FL (P)

2 2-Year U.S. Treasuries Rally, Close Below 0.72% U.S. Treasuries continued their rally this week as concerns over the European debt crisis grew. In a flight to quality, investors moved funds out of euros into dollars and out of riskier equity investments into U.S. Treasuries. The euro fell with domestic and foreign equity markets, as U.S. Treasury prices rose, pushing yields to close below 0.72% for the first time since the end of A disappointing jobless claims release on Thursday compounded E.U. worries, driving yields even lower. 2-year U.S. Treasury yields recovered slightly on Friday to end the week at 0.77%. 1.5% 2-Year U.S. Treasury Yields May 1, 2009 May 21, % 1.3% 1.2% 1.1% 1.0% 0.9% 0.8% 0.7% 0.6% 0.5% May '09 Aug '09 Nov '09 Feb '10 May '10 Source: Bloomberg 1

3 Core CPI Flat For Second Straight Month CPI fell by 0.1% in April. The decrease was due in part to a 1.4% drop in the energy component. Core CPI, which excludes the food and energy components, was flat for the second month in a row. Bond yields went lower on the news, because; as long as inflation remains under control, the Fed will likely continue to target a low fed funds rate. 1.5% Consumer Price Index (Month Over Month) April 2008 April % 0.5% 0.0% -0.5% -1.0% -1.5% -2.0% Apr '08 Aug '08 Dec '08 Apr '09 Aug '09 Dec '09 Apr '10 Consumer Price Index (MoM) CPI Ex Food& Energy (MoM) The Consumer Price Index (CPI) represents the month over month change in prices of goods and services purchased by urban households. Urban households represent about 80% of total U.S. population. CPI is the most widely followed indicator of inflation. Source: Bloomberg 2

4 Yield Curve: Blast From The Past The debt crisis in Greece has caused long-term rates to fall, such that they are at the same level that they were a year ago. Short-term rates, anchored to the fed funds target rate, have remained relatively unchanged, while intermediate term rates are just over 0.10% lower today than they were a year prior. 5% 4% U.S. Treasury Yield Curve May 20, 2009 versus May 20, /20/09 5/20/10 Change 3 month 0.17% 0.16% % 6 month 0.27% 0.20% % Yield 3% 2% 1 year 0.42% 0.31% % 2 year 0.83% 0.71% % 3 year 1.30% 1.17% % 5 year 2.03% 1.99% % 1% 0% mm y 2 y 3 y 5 y 10 y Maturity May 20, 2010 May 20, y 10 year 3.19% 3.23% % 30 year 4.14% 4.11% % Source: Bloomberg 3

5 First Quarter 2010 GDP The first quarter 2010 GDP number was first reported as 3.2%, slightly below the survey estimates of 3.4%. Growth during the quarter was helped out by consumers and business investment (equipment purchases) as real final sales to domestic purchasers improved to 2.2% over a mediocre 1.4% last quarter. 8% Gross Domestic Product (Quarter over Quarter) Fourth Quarter 2004 First Quarter % 4% 2% 0% -2% -4% -6% -8% 4Q04 2Q05 4Q05 2Q06 4Q06 2Q07 4Q07 2Q08 4Q08 2Q09 4Q09 2Q10 4Q10 Gross Domestic Product (GDP) is a measure of the United States production over the quarter, often shown as the quarter over quarter change. GDP includes consumption, government spending, investment, and net exports. It is the measure of economic activity in the United States. Source: Bloomberg 4

6 Federal Funds Target Rate The Fed continues to pledge to keep rates low for an extended period. The median of economists surveyed do not expect a rate increase until at least the end of % Federal Funds Target Rate Outlook May 2010 December % 4.0% 3.5% High 27% 3.0% 2.5% 2.0% Median 64% 1.5% 1.0% 0.5% Low 9% 0.0% May 10 Aug 10 Nov 10 Feb 11 May 11 Aug 11 Nov 11 Source: Bloomberg *Percentages based on responses from 56 economists surveyed 5

7 Strong Performance for the Short Term Portfolios The District s Capital and Operating Short Term portfolios out yielded the benchmark Merrill Lynch 3-month U.S. Treasury Bill Index by 20 basis points (0.20%). The District s Short Term portfolios are invested in U.S. Treasuries, Federal Agency securities and Commercial Paper rated A-1+ (short-term), the highest short term rating given by Standard and Poor s Portfolio (values as of ) Market Value YTM at Cost Capital Short Term Fund $85,234, % Operating Short Term Fund 110,176, % Total $195,410, % 6

8 Self Insurance Fund Portfolio Performance in the 1 st Quarter During the first quarter, the Self Insurance Portfolio slightly under performed its benchmark Merrill Lynch 1-3 Year U.S. Treasury Note Index, but has outperformed the benchmark in the last 12 months by 57 basis points (0.57%), while maintaining a portfolio duration 94% of the benchmark. Total Return 1Q 2010 Last 12 Months Last 24 Months Since Inception Self Insurance Fund 0.68% 1.98% 3.12% 3.72% Merrill Lynch 1-3 Year U.S. Treasury Note Index 0.70% 1.41% 2.50% 3.54% Portfolio Credit Quality as of March 31, 2010 Effective Duration (Years) March 31, 2010 December 31, 2009 AAA 57% Self Insurance Fund Merrill Lynch 1-3 Year U.S. Treasury Note Index TSY 43% 7

9 Current Portfolio Maturity Distribution The Self Insurance Fund Portfolio s current maturity distribution provides adequate liquidity, with 93% of the portfolio s maturities allocated among high quality securities that mature between 1 year and 3 years. Self Insurance Fund Portfolio s Maturity Distribution as of March 31, 2010 Percentage of Total Portfolio 80% 70% 60% 50% 40% 30% 20% 10% 0% 71.2% March 31, 2010 December 31, % 45.8% 25.2% 5.0% 0.6% 0.4% 0.4% 0.4% 0.0% 0.0% 2.8% 0.0% 0.0% 0.0% 0.0% Overnight Under 6 Months 6-12 Months 1-2 Years 2-3 Years 3-4 Years 4-5 Years 5 Years and Over 8

10 Analysis of the Current Self Insurance Fund Portfolio The spread between 2-year agencies and Treasuries began the first quarter of 2010 at 0.11%, well below the 10-year average of 0.36%. At that time, we increased the portfolio s exposure to Treasuries, which could outperform agencies when spreads widen. Spreads ended the quarter at 0.15%, but have since widened to 0.25%. Sector March 31, 2010 Sector Allocation March 31, 2010 U.S. Treasury Securities 42.6% Bulleted Federal Agencies 41.2% Callable Federal Agencies 16.2% Mortgage Backed Federal Agencies 0.0% Total Federal Agency 57.4% Corporate Securities (Non-FDIC) 0.0% FDIC Insured Corporate Securities 0.0% 9

11 Health Insurance Fund Portfolio Performance in the 1 st Quarter During the first quarter, the Health Insurance Portfolio slightly under performed its benchmark Merrill Lynch 1-3 Year U.S. Treasury Note Index but has outperformed the benchmark in the last 12 months by 68 basis points (0.68%), while maintaining a portfolio duration 92% of the benchmark. Total Return 1Q 2010 Last 12 Months Last 24 Months Since Inception Health Insurance Fund 0.65% 2.09% 3.09% 4.57% Merrill Lynch 1-3 Year U.S. Treasury Note Index 0.70% 1.41% 2.50% 4.17% Portfolio Credit Quality as of March 31, 2010 Effective Duration (Years) March 31, 2010 December 31, 2009 TSY 40% Health Insurance Fund Merrill Lynch 1-3 Year U.S. Treasury Note Index AAA 60% 10

12 Current Portfolio Maturity Distribution The Health Insurance Fund Portfolio s current maturity distribution provides adequate liquidity, with 95% of the portfolio s maturities allocated among high quality securities that mature between 1 year and 3 years. Health Insurance Fund Portfolio s Maturity Distribution as of March 31, 2010 Percentage of Total Portfolio 60% 50% 40% 30% 20% 10% 0% 0.2% 0.3% 5.0% 2.7% 0.0% 4.0% 42.8% 53.0% 46.8% 37.3% 5.3% March 31, 2010 December 31, % 0.0% 0.0% 0.0% 0.0% Overnight Under 6 Months 6-12 Months 1-2 Years 2-3 Years 3-4 Years 4-5 Years 5 Years and Over 11

13 Analysis of the Current Health Insurance Fund Portfolio During the first quarter of 2010, we increased exposure in the District s Health Insurance Fund to callable agencies, which offer a yield advantage over comparably maturing bulleted securities. We also increased Treasury exposure in the Health Insurance Fund portfolio, using a strategy similar to the District s Self Insurance Fund portfolio. Sector March 31, 2010 Sector Allocation March 31, 2010 U.S. Treasury Securities 40.3% Bulleted Federal Agencies 35.3% Callable Federal Agencies 24.4% Mortgage Backed Federal Agencies 0.0% Total Federal Agency 59.6% Corporate Securities (Non-FDIC) 0.0% FDIC Insured Corporate Securities 0.0% 12

14 Disclaimer This material is based on information obtained from sources generally believed to be reliable and available to the public, however Asset Management LLC cannot guarantee its accuracy, completeness or suitability. This material is for general information purposes only and is not intended to provide specific advice or a specific recommendation. All statements as to what will or may happen under certain circumstances are based on assumptions, some but not all of which are noted in the presentation. Assumptions may or may not be proven correct as actual events occur, and results may depend on events outside of your or our control. Changes in assumptions may have a material effect on results. Past performance does not necessarily reflect and is not a guaranty of future results. The information contained in this presentation is not an offer to purchase or sell any securities. 13