Treasury Oversight Committee

Transcription

1 Office of the Treasurer & Tax Collector City and County of San Francisco Tajel Shah, Chief Assistant Treasurer Robert L. Shaw, CFA, Chief Investment Officer José Cisneros, Treasurer Treasury Oversight Committee November 16, 2018 City Hall - Room Dr. Carlton B. Goodlett Place San Francisco, CA Telephone: Facsimile:

2 Table of Contents Economic & Market Overview Strategy The Economic Outlook Pooled Fund Review Pool Participants Breakdown September Monthly Report Separate handout 2

3 Key Economic Data 5% 4% 3% 2% 1% 0% -1% Gross Domestic Product -2% 51-3% GDP Year-over-Year Change 49-4% ISM Manufacturing PMI ISM Non-Manufacturing PMI -5% 47 9/14 9/15 9/16 9/17 9/ Producer Price Index vs Consumer Price Index 4.5% Core CPI Core PPI CPI PPI 3.5% 2.5% 1.5% 0.5% -0.5% -1.5% 9/14 9/15 9/16 9/17 9/18 Employment 12% 700K JOLTS & Jobless Claims 8,000K Labor Participation Rate 66% 65% 64% 63% Wage Growth Labor Participation Rate Unemployment Rate 10% 8% 6% 4% 2% Wage Growth & Unemployment Rate 600K 500K 400K 300K 200K 100K US Initial Jobless Claims US Job Openings 7,000K 6,000K 5,000K 4,000K 3,000K 2,000K 1,000K 62% 0% 9/08 9/10 9/12 9/14 9/16 9/18 Source: Bloomberg 0K 0K 9/08 9/10 9/12 9/14 9/16 9/18 3

4 Millions Key Economic Data Housing Existing Homes Sales New Home Sales 800K 700K 600K 500K 400K 300K 200K 100K 0 0K 9/08 9/09 9/10 9/11 9/12 9/13 9/14 9/15 9/16 9/17 9/ S&P/Case-Shiller Home Price Indices 20 Metro Composite San Francisco Area Source: Bloomberg 100 8/08 8/09 8/10 8/11 8/12 8/13 8/14 8/15 8/16 8/17 8/18 4

5 Yield Curve Changes 3.2% 3.0% 2.8% 2.6% 2.4% 2.2% 2.0% 1.8% 1.6% 1.4% UST Yields 08/31/ /07/2018 Change 3M M Y Y Y Y M 1Y 2Y 3Y 5Y UST Yield Curve as of 04/30/2018 UST Yield Curve as of 08/31/2018 UST Yield Curve as of 11/07/2018 Source: Bloomberg 5

6 Strategic Considerations Policy Issues: Monetary Steady as expected: Rate Increases Continuing at one (0.25%) per Quarter; Future Rate Increases: December: +0.25% is at 75% probability; and Was 64% at September TOC. Fiscal: Tax Reform: Corporate. Mostly for Buybacks; and Individual. One-time Bonus, not Pay Raises. Tariffs: Shifting demand to domestic supplies. 6

7 Strategic Considerations Government Policy Issues: Federal Reserve s Balance Sheet - $4.5 Trillion (Fall 2017): $4.2 Trillion (August 2018); and Decline is in-line with scheduled run-off. 7

8 Portfolio Issues: Strategic Considerations Pool Liquidity Requirements: SFO issued over $370 Million in Commercial Paper in October Use Money Market Sector to Satisfy Liquidity Needs Extending Portfolio Duration: in June 2018; 0.95 in December 2017; 0.88 in August 2017; and 0.68 in December Lengthening Duration is an Outcome, not an Objective. Focus is on: Purchasing Securities that mature on (or slightly before) a known need such as Payroll, Debt Service, Capital Project, etc. 8

9 The Economic Outlook indeed all the business of life, is to endeavourto find out what you don't know by what you do; that's what I called "guessing what was at the other side of the hill. The Duke of Wellington,

10 Goldilocks Zone: Frequently characterized by: The Economic Outlook Factor Current Low unemployment rate; 3.7% (lowest since 1969) Increasing asset prices (stocks, real estate, etc.); S&P 500 (+13.95% for 5 years) Low interest rates; Below historical norms Brisk but steady GDP growth; and > 2.5% past several years Low inflation Low (2.3%), but increasing Counterpunching: Labor participation rate has remained stubbornly low despite the large number of job opening; Asset prices (such as US Equities) have stumbled over the past months; Interest Rates are rising and the FOMC is expected to continue raising rates through 2019; GDP -The best positive among the factors; and Inflation -Average Hourly Earnings moved above 3.0% for the 1 st time since March

11 Future Rate Increases Closer to the End: Fed Funds: 2.00% % Range; +2.00% (8 Rate Increases since December 2015); Forecast (Fed Dot Plot) is for 4-5 more 0.25% rate increases; and Increases projected to end in late 2019 / early Pool Impact: Longer Maturity Bonds (beyond 2 years) become more attractive as short-term securities no longer benefit from rolling over to the higher interest rates. 11

12 The Dot Plot 12

13 Historical Maturity Distribution Comparison Maturity Distribution 50% 40% 30% 20% 9/30/2017 9/30/ % 0% 0 TO 1 MONTHS 1 TO 3 MONTHS 3 TO 6 MONTHS 6 TO 12 MONTHS 12 TO 24 MONTHS 24 TO 36 MONTHS 36 TO 48 MONTHS 48 TO 60 MONTHS Effective Maturity Distribution 50% 40% 30% 20% 9/30/2017 9/30/ % 0% 0 TO 1 MONTHS 1 TO 3 MONTHS 3 TO 6 MONTHS 6 TO 12 MONTHS 12 TO 24 MONTHS 24 TO 36 MONTHS 36 TO 48 MONTHS 48 TO 60 MONTHS Source: SunGard APS2 13

14 Portfolio Comparison 10,500 $ Millions 9,750 9,000 8,250 7,500 6,750 6,000 5,250 4, % 12.1% 1.7% 6.5% 3.3% 0.7% 4.5% 9.2% 10.2% 1.6% 5.3% 10.6% 17.3% 3.6% 4.1% 0.8% 3.6% 7.3% 4.4% 7.0% 19.6% 1.0% 1.9% Supranationals Money Market Funds Medium Term Notes Commercial Paper Banker's Acceptances Negotiable CDs Public Time Deposits State/Local Agencies TLGP 3,750 3,000 2, % 51.5% 53.7% 49.0% Federal Agencies U.S. Treasuries 1, % 9.7% 7.4% 5.9% 9/30/2015 9/30/2016 9/30/2017 9/30/2018 Source: SunGard APS2 14

15 Portfolio Comparison STEP CPN 5% STEP CPN 3% FLOAT 28% FLOAT 20% FIXED 67% FIXED 77% September 30, 2017 September 30, 2018 Source: SunGard APS2 15

16 County Pooled Fund Statistics Monthly Change In Earned Income Yield 3.2% 3.0% 2.8% 2.6% 2.4% 2.2% 2.0% 1.8% 1.6% 1.4% 1.2% 1.0% 0.8% 0.6% City and County of San Francisco Sacramento Fresno County Contra Costa LAIF SB SD Los Angeles County Sonoma County Riverside Orange County Sept 2017 Sept Name of Fund Portfolio Size* ($ mns) Los Angeles County $27,628.0 LAIF 20,193.6 City and County of San Francisco 9,910.6 San Diego County 8,257.9 San Bernardino County 6,166.0 Riverside County 5,818.8 Orange County (ex. Schools) 3,761.7 Fresno County 3,325.6 Sacramento County 3,196.0 Contra Costa County 2,216.7 Sonoma County 2,082.1 * as of September 2018 Weighted Average Maturity (in days) 2.0% LGIP Index 30-Day Gross Yield July 2012 July % 1.0% 0.5% San Francisco Earned Income Yield LGIP Index 30-Day Gross Yield 0.0% Sep 12 Sep 13 Sep 14 Sep 15 Sep 16 Sep 17 Sep 18 Sources: Bloomberg, Sacramento County as of 08/01/

17 Pool Participants Breakdown As of June 2018 Pool Participant Fund Balance Percent of Fund General Fund/Special City Funds/Internal Services Funds $4,962,817, % San Francisco International Airport 1,562,100, % San Francisco Municipal Transportation Authority 1,059,144, % San Francisco Public Utilities Commission 1,052,366, % Facilities and Capital Projects Funds - General 795,697, % San Francisco Unified School District 675,023, % OCII - Successor Agency former SFRDA 323,572, % Port of San Francisco 203,940, % San Francisco Community College District 172,523, % Other agencies (incl. Transbay Joint Powers, Trial Courts) 62,815, % San Francisco General Hospital and Laguna Honda Hospital 59,440, % Pension and Retiree Health Care Trust Fund 33,351, % San Francisco County Transportation Authority 13,853, % Totals $10,976,647, % Sources: FSP, Controller s Office. Fund Balance reflects Average Daily Balance in June

18 Pool Participants Trends June 30, June 30, 2018 Billions General Fund/Special City Funds/Internal Services Funds San Francisco Municipal Transportation Authority Facilities and Capital Projects Funds - General San Francisco General Hospital and Laguna Honda Hospital Source: Ending Balance Cognos Impromptu, 2018 Average Daily Balance June FSP and Controllers Office. San Francisco International Airport San Francisco Public Utilities Commission San Francisco Unified School District Other 18