City of Sarasota, Florida Annual Investment Performance Review Fiscal Year Ended September 30, 2013 Financial Administration Department 1565 1st Street Sarasota, FL 34236 (941) 954-4185 (941) 954-4189 fax John C. Lege III, CGFO, Finance Director Kelly R. Strickland, CPA, CGFO, Deputy Finance Director PFM Asset Management LLC 300 S. Orange Avenue, Suite 1170 Orlando, FL 32801 (407) 648-2208 (407) 648-1323 fax Steven Alexander, CTP, CGFO, Managing Director D. Scott Stitcher, CFA, Senior Managing Consultant Richard Pengelly, CFA, Senior Managing Consultant Gregg Manjerovic, CFA, Portfolio Manager Rebecca Geyer, CTP, Senior Analyst
Table of Contents Section A Annual Investment Report Section B Asset Allocation Chart This material is based on information obtained from sources generally believed to be reliable and available to the public, however PFM 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 recommendation. The information contained in this report is not an offer to purchase or sell any securities. Table of Contents Section i
Annual Investment Report Commentary EXECUTIVE SUMMARY The City is invested in high credit quality U.S. Treasury, Federal Instrumentalities, mortgage backed securities, corporate notes, and municipal obligation securities, FMIvT High Quality 1-3 Year Bond Fund, FMIvT Intermediate High Quality Bond Fund, Florida SBA Fund B, Certificate of Deposits, Fidelity Prime Institutional Money Market Fund, and a Wells Fargo Money Market Account. PFM continued to actively manage the Investment Portfolio during the fiscal year and found value in the market, taking advantage of market inefficiencies or changes in economic outlook. As a result the Portfolio realized over $197,367 in gains on sales (based on amortized cost) during the fiscal year. PFM is continually in the market monitoring for opportunities to add value to the Portfolio. The Investment Portfolio s quarterly last 12 month return performance was 0.35%, slightly underperforming the benchmark s performance of 0.37% by 0.02%. This slight underperformance is a result of the U.S. Treasury and Agency rates being range bound for most of the quarter. We expect volatility in yields to remain elevated as the Fed reduces, and eventually concludes, its bond purchasing program, and trading ranges periodically shift higher. Returns for corporate bonds materially outperformed governments over the past 12 months as spreads ground tighter led by the financial sector. To the extent yields rise in a controlled manner, corporate bonds and the excess yield they offer will continue to outperform governments due to greater income return. Our main goal is to preserve the principal of the Portfolio and in this volatile market we will continue to diligently manage the Portfolio. The FMIvT High Quality 1-3 Year Bond Fund s last 12 month total return of 0.27% underperforming its benchmark s performance of 0.37% by 0.10%. The FMIvT Intermediate High Quality Bond Fund s last 12 month total return of -0.98% underperforming its benchmark s performance of -0.81% by 0.17% The City s Certificates of Deposits and short term investments, which include the Florida SBA Fund B, Fidelity Prime Institutional Money Market Fund, and Wells Fargo Money Market Account, provided the City with favorable yield relative to the benchmark. At fiscal year end the investments had a weighted average Yield to Maturity at Cost of 0.17%, exceeding the Yield to Maturity of its benchmark the Merrill Lynch 3 Month U.S. Treasury Bill Index by 15 basis points (0.15%). Risk management will remain a key aspect of our overall approach under volatile market conditions. In particular, ensuring adequate liquidity will be an important element of the strategy, so as not to have to sell into adverse market conditions. Furthermore, given wider differences between bid prices and offering prices in most sectors (the bid/ask spread ), we will likely carry more Treasuries than usual to provide additional flexibility to adjust portfolio composition or duration as opportunities arise. The investments comply with the City s investment policy and Florida investment statutes. Our strategy will continue to focus on maintaining the safety of the invested principal and achieving the City s long-term investment objectives. We will maintain safe, well-diversified, high quality portfolios and continue to evaluate all the sectors available to the City and to capitalize on investment opportunities presented by the market. We will continue to carefully manage duration consistent with evolving interest rate trends. Annual Investment Report Section A - 1
Annual Investment Report Statistics as of September 30, 2013 Investments Market Value Book Value Fiscal Year 2013 Income PFM Managed Investment/Short Term Portfolios $ 140,546,149 $ 140,078,515 $ 1,330,388 Fidelity Prime Institutional Money Market Fund 521,648 521,648 4,233 FMIvT 9,188,224 9,188,224 (55,194) CD - Bank of America 3,000,000 3,000,000 6,083 Florida SBA Fund B 4,114 4,114 4 Wells Fargo Money Market Account 33,000,000 33,000,000 95,792 Services Fees n/a n/a (296,189) Subtotal $ 186,260,134 $ 185,792,501 $ 1,085,117 Change in Fair Market Value (862,034) Change in Accrued Interest 48,071 Subtotal (813,963) Total $ 271,154 Long Term Investments Last 12 Month Total Return PFM Managed Investment Portfolio 1 0.35% Short Term Investments Net Book Value Rate of Return Fidelity Prime Institutional Money Market Fund 2 0.01% Benchmark: Merrill Lynch 1-3 Year U.S. Treasury Index 0.37% Certificates of Deposit 0.20% Florida SBA Fund B FMIvT High Quality 1-3 Year Bond Fund 4 0.27% Wachovia Money Market Account 0.00% Benchmark: Merrill Lynch 1-3 Year U.S. Treasury/Agency Index 4 0.37% Weighted Average Yield 0.12% n/a FMIvT Intermediate High Quality Bond Fund 4-0.98% Benchmark: Barclays Capital High Quality Intermediate Aggregate 4-0.81% Benchmark: Merrill Lynch 3-Month U.S. Treasury Bill Index 3 0.02% 1. In order to comply with GASB accrual accounting reporting requirements; forward settling trades are included in the monthly balances. Performance on trade basis, gross (i.e., before fees), is in accordance with the CFA Institute's Global Investment Performance Standards (GIPS). Past performance is not indicative of future results. Excludes money market fund/cash in performance computation. 2. Bloomberg is the source of the 7-day yield at month end. 3. Bloomberg is the source of the yield at month end. 4. http://www.floridaleagueofcities.com/finance is the source of the FMIvT total return performance. Annual Investment Report Section A - 2
Annual Investment Report Composition and Credit Quality Characteristics Security Type 1 September 30, 2013 % of Portfolio September 30, 2012 % of Portfolio Permitted by Policy U.S. Treasuries $55,769,739 29.94% $67,597,890 35.48% 100% Federal Agencies 45,449,012 24.40% 47,182,273 24.77% 100% Mortgage Backed 11,299,333 6.07% 14,593,747 7.66% 15% / 30% Certificates of Deposit 3,000,000 1.61% 3,000,000 1.57% 30% Commercial Paper 0 0.00% 4,998,720 2.62% 40% Corporate Notes/Bonds 25,956,863 13.94% 13,893,913 7.29% 30% Municipal Obligations 2,071,201 1.11% 0 0.00% FMIvT 9,188,224 4.93% 9,243,418 4.85% Florida SBA Fund B 4,114 0.002% 7,529 0.00% 20% Money Market Fund/Cash 33,521,648 18.00% 29,992,260 15.74% 20% / $30 Million Totals $186,260,134 100.00% $190,509,750 100.00% Money Market Fund/Cash 18% Florida SBA Fund B 0.002% FMIvT 5% Municipal Obligations 1% Corporate Notes/Bonds 14% Investment Composition as of 09/30/13 U.S. Treasuries 30% Not Rated (CD's, Wells Fargo Money Market Account) 19% AAAm 0.28% A- 1% A 7% Credit Quality Distribution² AAA as of 09/30/13 5% AA+ 63% Certificates of Deposit 2% Mortgage Backed 6% Federal Agency Obligations 24% A+ 3% AA- 1% AA 0.42% 1. End of fiscal year trade-date market values of portfolio holdings, including accrued interest. 2. The Certificate of Deposits and Wells Fargo Money Market Account are not rated. Standard & Poor's is the source of the credit ratings, except for FMIvT Funds which are rated by Fitch. Annual Investment Report Section A - 3
Annual Investment Report Maturity Distribution Maturity Distribution 1 September 30, 2013 September 30, 2012 Security Type Weighted Average Maturity (Years) Overnight (Money Market Fund) $36,521,648 $32,992,260 U.S. Treasuries 1.51 Under 6 Months 3,504,184 11,278,279 Federal Agencies 1.45 6-12 Months 19,288,539 6,954,532 Mortgage Backed 3.28 1-2 Years 62,164,959 52,151,828 Corporate Notes 1.67 2-3 Years 53,564,144 59,013,132 Municipal Obligation 2.40 3-4 Years 4,114 14,073,929 Certificates of Deposit 0.73 4-5 Years 0 7,529 FMIvT 2.56 5 Years and Over 11,212,546 14,038,261 Florida SBA Fund B 4.04 Totals $186,260,134 $190,509,750 Money Market Fund/Cash 0.01 Portfolio Weighted Average Maturity 1.38 Percentage of Total Portfolio 40% 35% 30% 25% 20% 15% 10% 5% 0% Investment Portfolio Maturity Distribution¹, ² September 30, 2013 33% 27% 29% 31% September 30, 2012 20% 17% 10% 7% 7% 6% 6% 4% 2% 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 1. Callable and mortgage backed securities in portfolio are included in the maturity distribution analysis to their stated maturity date, although they may be called or paid down prior to maturity. 2. This chart is based on securities final maturity date; including mortgage backed securities. Annual Investment Report Section A - 4
City of Sarasota, Florida Asset Allocation Compliance as of September 30, 2013* Security Type 1, 6 Balance Percentage Notes Permitted by Policy Florida Prime (SBA) 7 3,632.72 0.002% 3 25% United States Treasury Securities 55,766,128.69 29.94% 5 100% United States Government Agency Securities 2,880,575.84 1.55% 5 50% Federal Instrumentalities 42,568,436.22 22.85% 5 75% Mortgage-Backed Securities 11,299,333.13 6.07% 5 20% Interest Bearing Time Deposits/ Savings Account 3,000,000.00 1.61% 3 50% Repurchase Agreements - 0.00% 25% Commercial Paper - 0.00% 2, 5 20% Corporate Notes 25,956,862.87 13.94% 2, 5 20% Corporate Notes - FDIC - 0.00% 50% State and/or Local Government Debt 2,071,201.47 1.11% 20% Money Market Mutual Funds 33,521,647.64 18.00% 3 50% Intergovernmental Investment Pool 9,188,223.66 4.93% 3, 4 75% United States Government Agency Securities 1.55% Federal Instrumentalities 22.85% Mortgage-Backed Securities 6.07% Interest Bearing Time Deposits/ Savings Account 1.61% United States Treasury Securities 29.94% Corporate Notes 13.94% State and/or Local Government Debt 1.11% Florida Prime (SBA) 0.002% Intergovernmental Investment Pool 4.93% Money Market Mutual Funds 18.00% Individual Issuer Breakdown Balance Percentage Notes Permitted by Policy Individual Issuer Breakdown Balance Percentage Notes Permitted by Policy Government National Mortgage Association (GNMA) 2,880,575.84 1.55% 5 25% Bank of America - Certificate of Deposit 3,000,000.00 1.61% 3 25% US Export-Import Bank (Ex-Im) - 0.00% 25% JP Morgan Chase Corporate Notes 4,027,945.14 2.16% 5 5% Farmers Home Administration (FMHA) - 0.00% 25% General Electric Corporate Notes 2,614,661.34 1.40% 5 5% Federal Financing Bank - 0.00% 25% Bank of New York Mellon Corporate Notes 2,982,545.33 1.60% 5 5% Federal Housing Administration (FHA) - 0.00% 25% John Deere Corporate Notes 4,239,908.87 2.28% 5 5% General Services Administration - 0.00% 25% McDonald's Corporate Notes 1,408,750.93 0.76% 5 5% New Communities Act Debentures - 0.00% 25% Walt Disney Corporate Notes 821,915.33 0.44% 5 5% US Public Housing Notes & Bonds - 0.00% 25% Anheuser-Busch Corporate Notes 2,012,427.78 1.08% 5 5% US Dept. of Housing and Urban Development - 0.00% 25% Pepsico Corporate Notes 997,745.56 0.54% 5 5% Federal Farm Credit Bank (FFCB) 3,504,183.67 1.88% 5 40% Caterpillar Corporate Notes 976,170.70 0.52% 5 5% Federal Home Loan Bank (FHLB) 7,605,975.26 4.08% 5 40% Apple Inc. Corporate Notes 1,502,229.54 0.81% 5 5% Federal National Mortgage Association (FNMA) 21,441,889.50 11.51% 5 40% Toyota Corporate Notes 1,483,109.15 0.80% 5 5% Federal Home Loan Mortgage Corporation (FHLMC) 21,315,720.92 11.44% 5 40% Wells Fargo & Company Corporate Notes 2,889,453.20 1.55% 5 5% Minnesota State GO Bond 1,297,624.22 0.70% 5 5% University of California Taxable Revenue Bond 773,577.25 0.42% 5 5% FNMA Mortgage Backed Security 3,175,029.59 1.70% 5 15% FHLMC Mortgage Backed Security 5,243,727.70 2.82% 5 15% GNMA Mortgage Backed Security 2,880,575.84 1.55% 5 15% Money Market Fund - Wells Fargo Bank 33,000,000.00 17.72% 3 25% Money Market Fund - Bank of New York 521,647.64 0.28% 3 25% Intergovernmental Investment Pool - Florida Municipal Investment Trust 9,188,223.66 4.93% 3,4 25% 1. End of month trade-date market value of portfolio holdings, including accrued interest. 2. Combined total of Corporate Obligations and Commercial Paper shall not exceed 35% of the total investments. The combined total as of September 30, 2013 is 13.94%. 3. Managed by the City. Balances provided by City per statement. 4. Includes balances from the 1-3 Year High Quality Bond Fund and Intermediate High Quality Bond Fund. 5. Managed by PFM Asset Management LLC. 6. A detailed list of each individual security may be obtained in the City's Financial Administration Department. 7. SBA's Fund B. * All Assets Annual Investment Report Section B - 1