INVESTMENT TIPS AND TECHNIQUES

Transcription

1 INVESTMENT TIPS AND TECHNIQUES Ohio Township Association Annual Winter Conference February 2, 2018 Presented by Eileen Stanic, CTP Senior Public Funds Advisor Meeder Investment Management 1 AGENDA Cash vs. Core Portfolio Bank Fees vs. Balances Commercial Paper Step up Bonds Municipal Securities Brokered CDs Collateralization of Public Deposits Service Providers The Fed & Interest Rate Outlook 2 1

2 Cash vs. Core 3 CASH VS. CORE Cash Management Cash Portfolio Operating needs for current year Funds with uncertain time horizon Investment Management Core Portfolio Time horizon greater than one year Apply investment strategy to maximize earnings 4 2

3 CASH VS. CORE $8,000,000 $7,000,000 $6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 Year end Balances per CAFR $ CASH VS. CORE $12,000,000 Month end Balances $10,000,000 $8,000,000 $6,000,000 $4,000,000 $2,000,000 $ Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 6 3

4 CASH VS. CORE Current Cash $7.5million Earning 1.00% Core $0.0million Earning 2.00% Right Sized Cash $1.5million Earning 1.00% Core $6.0million Earning 2.00% Projected Additional Interest Income of $60,000 7 Bank Fees vs. Balances 8 4

5 BANK ACCOUNT ANALYSIS STATEMENT Local Bank Average Ledger Balance $24,536, Less Average Float $0.00 Average Collected Balance $24,536, Less Reserve Requirement $2,453, Average Available Balance $22,083, BANK ACCOUNT ANALYSIS STATEMENT Local Bank Cost of Services Volume Unit Price Total Cost Account maintenance Image statement Checks paid 2, ACH credits received Analysis maintenance fee Total Charge for Services $

6 BANK ACCOUNT ANALYSIS STATEMENT Local Bank Average Ledger Balance $24,536, Less Average Float $0.00 Average Collected Balance $24,536, Less Reserve Requirement $2,453, Average Available Balance $22,083, Earnings Credit Allowance 0.25% $4, Total Charge for Services $ Net Charge for Services $0 11 BENEFITS OF REDUCING BANK BALANCES Existing Reduced Balances Average Ledger Balance $24,536, $4,536, Earnings Credit Allowance (0.25%) $4, $ Total Charge for Services ($791.90) ($791.90) Alternative Investment Earning (2.00% annually) $0 $33, INCREASED INTEREST INCOME OF $400,000 PER YEAR BASED ON INVESTING THE $20.0 MILLION TO YIELD 2.00% 12 6

7 Commercial Paper 13 COMMERCIAL PAPER OHIO REVISED CODE ) Up to forty per cent of interim moneys available for investment in either of the following: (a) Commercial paper notes issued by an entity that is defined in division (D) of section of the Revised Code and that has assets exceeding five hundred million dollars, to which notes all of the following apply: (i) The notes are rated at the time of purchase in the highest classification established by at least two nationally recognized standard rating services. (ii) The aggregate value of the notes does not exceed ten per cent of the aggregate value of the outstanding commercial paper of the issuing corporation. (iii) The notes mature not later than two hundred seventy days after purchase. (iv) The investment in commercial paper notes of a single issuer shall not exceed in the aggregate five per cent of interim moneys available for investment at the time of purchase. (b) Bankers acceptances of banks that are insured by the federal deposit insurance corporation and that mature not later than one hundred eighty days after purchase. No investment shall be made pursuant to division (B)(7) of this section unless the treasurer or governing board has completed additional training for making the investments authorized by division (B)(7) of this section. The type and amount of additional training shall be approved by the treasurer of state and may be conducted by or provided under the supervision of the treasurer of state. 14 7

8 COMMERCIAL PAPER RATE COMPARISON 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% Commercial Paper US Treasury Govt Agency CDARS Brokered CD Commercial Paper rates for 270 days. Rates on all other securities for 1 year maturity. Rates as of 1/25/18. For illustration purposes only. 15 COMMERCIAL PAPER INCOME COMPARISON PER $1.0 MILLION INVESTED $18,000 $16,000 $14,000 $12,000 $10,000 $8,000 $6,000 $4,000 $2,000 $ Commercial Paper US Treasury Govt Agency CDARS Brokered CD Income calculated for 270 day term for all investment options. For illustration purposes only. 16 8

9 Step up Bonds 17 STRAIGHT CALLABLE VS STEP (INTEREST RATES) Straight Callable 3134GAC44 FHLMC 2.375% 12/30/21 vs. Multi Step 3130AAAN8 FHLB 1.30% 12/16/ % 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% Dec 16 Mar 17 Jun 17 Sep 17 Dec 17 Mar 18 Jun 18 Sep 18 Dec 18 Mar 19 Jun 19 Sep 19 Dec 19 Mar 20 Jun 20 Sep 20 Dec 20 Mar 21 Jun 21 Sep 21 Dec 21 Straight Step 18 9

10 STRAIGHT VS STEP (CUMULATIVE INTEREST) Straight Callable 3134GAC44 FHLMC 2.375% 12/30/21 vs. Multi Step 3130AAAN8 FHLB 1.30% 12/16/21 $250,000 $200,000 $150,000 $100,000 $50,000 $ Dec 16 Mar 17 Jun 17 Sep 17 Dec 17 Mar 18 Jun 18 Sep 18 Dec 18 Mar 19 Jun 19 Sep 19 Dec 19 Mar 20 Jun 20 Sep 20 Dec 20 Mar 21 Jun 21 Sep 21 Dec 21 Straight Step 19 Municipal Securities 20 10

11 MUNICIPAL SECURITIES OHIO REVISED CODE (4) Bonds and other obligations of this state, or the political subdivisions of this state, provided that, with respect to bonds or other obligations of political subdivisions, all of the following apply: (a) The bonds or other obligations are payable from general revenues of the political subdivision and backed by the full faith and credit of the political subdivision. (b) The bonds or other obligations are rated at the time of purchase in the three highest classifications established by at least one nationally recognized standard rating service and purchased through a registered securities broker or dealer. (c) The aggregate value of the bonds or other obligations does not exceed twenty per cent of interim moneys available for investment at the time of purchase. (d) The treasurer or governing board is not the sole purchaser of the bonds or other obligations at original issuance. No investment shall be made under division (B)(4) of this section unless the treasurer or governing board has completed additional training for making the investments authorized by division (B)(4) of this section. The type and amount of additional training shall be approved by the treasurer of state and may be conducted by or provided under the supervision of the treasurer of state. 21 MUNICIPAL SECURITIES: TAX EXEMPT ISSUE City of Avon Water System Revenue Bonds 1.25% 2/2/17 priced 1/20/16 to yield 0.73% 1.20% Rate Comparison 1.00% 0.80% 0.60% 0.40% 0.20% 0.00% Muni US Treasury Agency CDARS Brokered CD Commercial paper (270 days) 22 11

12 MUNICIPAL SECURITIES: TAXABLE ISSUE Lake County Community College District, OH Facilities Bonds, 2.00% 12/1/17 Priced 1/27/16 to yield 1.30% 1.40% 1.20% 1.00% 0.80% 0.60% 0.40% 0.20% 0.00% Rate Comparison Muni US Treasury Agency CDARS Brokered CD Commercial paper (270 days) 23 MUNICIPAL SECURITIES Credit Risk 24 12

13 Brokered CDs 25 CERTIFICATES OF DEPOSIT 26 13

14 CERTIFICATES OF DEPOSIT 27 CERTIFICATES OF DEPOSIT CDs bought at $250,000 Account carried with National Financial Services LLC, Member NYSE, SIPC 28 14

15 Collateralization of Public Deposits 29 COLLATERAL OF PUBLIC DEPOSITS Ohio public depositories must provide collateral comprised of securities, bonds or letter of credit Methods of collateralization Specific Pooled Bank must select one method of collateralization for all public depositors 30 15

16 SPECIFIC COLLATERAL Ohio Revised Code Collateral held in separate account for each public depositor Market value of collateral equal to or greater than 105% of uninsured public deposit Public depositor responsible for monitoring 31 OHIO POOLED COLLATERAL PROGRAM Ohio Revised Code Effective July 1, 2017 Lien perfection required Ohio Pooled Collateral System (OPCS) TOS sole regulator and monitor of program Market value of collateral equal to or greater than 102% of uninsured public deposits, or Amount determined by rules adopted by TOS Website access for reporting of collateral to public depositor 32 16

17 Service Providers 33 THIRD PARTY CUSTODIAN OHIO TOWNSHIP Funds TOWNSHIP S ACCOUNT WITH BANK TRUST DEPARTMENT Trade details ADVISOR OR FISCAL OFFICER Securities Execute trades Improved safety Centralized reporting Facilitates reconciliation On line account access BROKER/DEALERS 34 17

18 WHO WILL HELP YOU INVEST Know the Types of Service Providers STAR Ohio/Plus Banks Investment Advisors Brokers STAR Ohio Know the investments of STAR Ohio Look over the annual report Plus Understand how program works Monitor deposit Banks Make sure they understand nuances of public entities Work with banks you know and trust Acts as a fiduciary in the client s best interest Who do they work with? What are their credentials? Check them out: Recommends suitable investments Who do they work with? What do they do and how much do they charge? Check them out: Perform the Due Diligence Before Investing 35 EXTERNAL MANAGERS ADVISOR PROVIDES INVESTMENT ADVICE FIDUCIARY RESPONSIBILITY MAY OR MAY NOT HAVE DIRECT CONTROL (DISCRETIONARY VS. NON DISCRETIONARY) EXECUTES PURCHASES/SALES MANAGES OR PROVIDES ADVICE ON OVERALL PORTFOLIO MAY COORDINATE SAFEKEEPING (3 RD PARTY CUSTODIAN) Definition of Fiduciary - fi du cia ry - noun In law, a person in a position of authority whom the law obligates to act solely on behalf of the person he or she represents and in good faith. Source: Merriam-Webster 36 18

19 EXTERNAL MANAGERS BROKER/DEALER Provides investment advice No fiduciary responsibility Does not have direct control Acts as a broker when executing orders on behalf of clients Acts as a dealer when trading from its own account May provide safekeeping 37 BENEFITS OF USING EXTERNAL MANAGERS Professional manager that is their business Greater access to investment markets/information Broker network potentially more sources to receive best price execution of trades Enhanced credit research available for unsecured investments (i.e., commercial paper) Can complement internal resources or personnel Could increase internal control and separation of duties Be careful and know what role the provider is playing 38 19

20 FED POLICY & INTEREST RATE OUTLOOK 39 FOMC STATEMENT HIGHLIGHTS December 13, 2017 FOR THE THIRD TIME THIS YEAR; THE COMMITTEE VOTED TO RAISE THE FED FUNDS TARGET RANGE TO 1.25% 1.50% OF THE 9 VOTING MEMBERS; 7 VOTED FOR THE QUARTER PERCENT INCREASE, WITH 2 VOTING TO KEEP IT UNCHANGED EXPECTS THAT ECONOMIC CONDITIONS WILL EVOLVE IN A MANNER THAT WILL WARRANT GRADUAL INCREASES IN THE FEDERAL FUNDS RATE INFLATION ON A 12 MONTH BASIS IS EXPECTED TO REMAIN SOMEWHAT BELOW 2 PERCENT IN THE NEAR TERM HOUSEHOLD SPENDING HAS BEEN EXPANDING AT A MODERATE RATE AND GROWTH IN BUSINESS FIXED INVESTMENT HAS PICKED UP IN RECENT QUARTERS THE FED CONFIRMED THAT IT WOULD INCREASE ITS MONTHLY PACE OF SHRINKING THE BALANCE SHEET TO $20 BILLION STARTING IN JANUARY Source: Federal Reserve 40 20

21 YIELD CURVE COMPARISON 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 12/29/ /30/ % 0.00% J F A M J S O D F 1 M 6 M 2 Y 5 Y 7 Y 10 Y 30 Y Source: Bloomberg 41 GLOBAL BOND YIELDS 1Y 2Y 3Y 4Y 5Y 7Y 8Y 9Y 10Y 30Y Switzerland 0.91% 0.82% 0.70% 0.59% 0.49% 0.34% 0.26% 0.19% 0.13% 0.36% Sweden 0.79% 0.41% 0.11% 0.36% 0.54% 0.77% Germany 0.72% 0.63% 0.49% 0.32% 0.17% 0.10% 0.24% 0.36% 0.48% 1.28% Netherlands 0.70% 0.60% 0.44% 0.28% 0.12% 0.16% 0.30% 0.41% 0.52% 1.26% Finland 0.70% 0.63% 0.46% 0.35% 0.16% 0.12% 0.30% 0.59% 1.34% France 0.63% 0.54% 0.38% 0.22% 0.06% 0.23% 0.37% 0.51% 0.64% 1.74% Belgium 0.68% 0.56% 0.40% 0.23% 0.07% 0.21% 0.35% 0.48% 0.61% 1.68% Austria 0.61% 0.53% 0.47% 0.35% 0.13% 0.16% 0.31% 0.47% 0.56% 1.44% Denmark 0.65% 0.60% 0.39% 0.26% 0.11% 0.14% 0.25% 0.37% 0.48% 1.13% Japan 0.15% 0.14% 0.12% 0.12% 0.11% 0.06% 0.03% 0.01% 0.04% 0.81% Spain 0.47% 0.30% 0.09% 0.15% 0.39% 0.89% 1.13% 1.35% 1.55% 2.84% Italy 0.35% 0.07% 0.25% 0.58% 0.88% 1.41% 1.65% 1.85% 2.04% 3.24% Portugal 0.34% 0.15% 0.11% 0.40% 0.70% 1.29% 1.58% 1.82% 2.04% 3.20% UK 0.35% 0.43% 0.51% 0.61% 0.72% 0.94% 1.04% 1.14% 1.24% 1.76% Canada 1.52% 1.69% 1.73% 1.79% 1.86% 1.94% 1.99% 2.03% 2.04% 2.26% US 1.74% 1.89% 1.97% 2.21% 2.33% 2.41% 2.74% Australia 1.83% 1.99% 2.14% 2.26% 2.35% 2.50% 2.55% 2.60% 2.65% 3.36% Source: Bloomberg as of 12/29/

22 UNEMPLOYMENT Unemployment rate vs participation rate Participation Rate 68% Unemployment Rate 12% 66% 64% 62% 10% 8% 60% 6% 58% 56% 54% 4% 2% 52% Source: Bloomberg Mar 50 Sep 51 Mar 53 Sep 54 Mar 56 Sep 57 Mar 59 Sep 60 Mar 62 Sep 63 Mar 65 Sep 66 Mar 68 Sep 69 Mar 71 Sep 72 Mar 74 Sep 75 Mar 77 Sep 78 Mar 80 Sep 81 Mar 83 Sep 84 Mar 86 Sep 87 Mar 89 Sep 90 Mar 92 Sep 93 Mar 95 Sep 96 Mar 98 Sep 99 Mar 01 Sep 02 Mar 04 Sep 05 Mar 07 Sep 08 Mar 10 Sep 11 Mar 13 Sep 14 Mar 16 Sep 17 0% 43 INFLATION Personal Consumption Expenditures (PCE) 3.00% Personal Consumption Expenditures (Core) Fed Target 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% Dec 06 Apr 07 Aug 07 Dec 07 Apr 08 Aug 08 Dec 08 Apr 09 Aug 09 Dec 09 Apr 10 Aug 10 Dec 10 Apr 11 Aug 11 Dec 11 Apr 12 Aug 12 Dec 12 Apr 13 Aug 13 Dec 13 Apr 14 Aug 14 Dec 14 Apr 15 Aug 15 Dec 15 Apr 16 Aug 16 Dec 16 Apr 17 Aug 17 Source: Bloomberg 44 22

23 /26/2018 INFLATION OUTLOOK U.S. 5 Year Breakeven Index 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% Source: Bloomberg Jul 12 Sep 12 Nov 12 Jan 13 Mar 13 May 13 Jul 13 Sep 13 Nov 13 Jan 14 Mar 14 May 14 Jul 14 Sep 14 Nov 14 Jan 15 Mar 15 May 15 Jul 15 Sep 15 Nov 15 Jan 16 Mar 16 May 16 Jul 16 Sep 16 Nov 16 Jan 17 Mar 17 May 17 Jul 17 Sep 17 Nov INTEREST RATE OUTLOOK US Overnight Interest Rate Swaps 2.25% 2.00% 1.75% 1.50% 1.25% 1.00% 0.75% 0.50% 12/29/ /30/ % 0.00% 1 M 6 M 1Y 2 Y 3 Y 5 Y 10Y Source: Bloomberg 46 23

24 SUMMARY Ask questions Know the details Protect yourself follow the law Seek help when appropriate ULTIMATELY IT IS YOUR RESPONSIBILITY! 47 THANK YOU Eileen Stanic, Senior Public Funds Advisor Direct:

25 Disclosure MEEDER PUBLIC FUNDS (WHICH ALSO DOES BUSINESS AS PRODUCTIVE CAPITAL MANAGEMENT) AND MEEDER ASSET MANAGEMENT (BOTH SUBSIDIARIES OF MEEDER INVESTMENT MANAGEMENT) ARE REGISTERED INVESTMENT ADVISERS WITH THE SECURITIES AND EXCHANGE COMMISSION (SEC) UNDER THE INVESTMENT ADVISERS ACT OF THE OPINIONS EXPRESSED IN THIS PRESENTATION ARE THOSE OF MEEDER INVESTMENT MANAGEMENT AS OF 1/29/2015. THE MATERIAL PRESENTED HAS BEEN DERIVED FROM SOURCES CONSIDERED TO BE RELIABLE, BUT THE ACCURACY AND COMPLETENESS CANNOT BE GUARANTEED. ANY RATES AND YIELDS SHOWN ARE FOR ILLUSTRATIVE PURPOSES ONLY. ANY SECURITIES SHOWN ARE FOR ILLUSTRATIVE PURPOSES ONLY AND SHOULD NOT BE ASSUMED TO BE ELIGIBLE INVESTMENTS FOR YOUR ENTITY. YOU SHOULD REVIEW ANY INVESTMENT S ELIGIBILITY BASED ON OHIO REVISED CODE AND YOUR ENTITY S INVESTMENT POLICY. PAST PERFORMANCE DOES NOT GUARANTEE FUTURE RESULTS. OPINIONS AND FORECASTS ARE ALL SUBJECT TO CHANGE AT ANY TIME, BASED ON MARKET AND OTHER CONDITIONS, AND SHOULD NOT BE CONSTRUED AS A RECOMMENDATION OF ANY SPECIFIC SECURITY. INVESTING IN SECURITIES INVOLVES INHERENT RISKS, INCLUDING THE RISK THAT YOU CAN LOSE THE VALUE OF YOUR INVESTMENT. THERE IS NO ASSURANCE THAT THE INVESTMENT PROCESS WILL CONSISTENTLY LEAD TO SUCCESSFUL RESULTS. THE INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT WILL FLUCTUATE SO AN INVESTOR S SHARES OR UNITS, WHEN REDEEMED, MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL COST