City of El Segundo Office of the City Treasurer Date: September 15, 2015 From: Office of the City Treasurer To: El Segundo City Council RE: Investment Portfolio Report As of June 30, 2015 Introduction: This report will serve as a summary for the City of El Segundo s Treasury Department investment reporting, compliance, investment environment and future plans; as well as subsidiary schedules which will support the Portfolio Summary and provide additional analysis of our investments. Investment Summary: The investments as of June 30, 2015 are as follows: June Portfolio Summary Market Security Type Cost Market value % of Total Government 15,766,451.50 15,753,147.45 20.11% Corp. Bonds 3,801,142.77 3,770,547.50 4.81% CD's 8,318,000.00 8,342,962.50 10.65% Union Bank Trust 27,885,594.27 27,866,657.45 35.57% LAIF Immediate $11,012,335.65 $11,012,335.65 14.05% LAIF - LAWA $18,909,868.08 $18,909,868.08 24.13% LAIF Subtotal $29,922,203.73 $29,922,203.73 38.19% Total Invested 57,807,798.00 57,788,861.18 73.75% Trust Acct. Cash 250,423.81 250,423.81 0.32% Chase Bank - $20,313,948.37 20,313,948.37 25.93% Cash Total Portfolio 78,372,170.18 78,353,233.36 100.00% Page 1
The portfolio Breakdown by Short Term (< 1 year) and Long Term is: Short Term Long Term Total Portfolio Value (Market) $ 33,519,152 $ 24,520,133 $ 58,039,285 Effective Yield 0.346% 1.090% 0.661% Average Wtd. Maturity 15.00 Days 2.45 Years 1.06 Years Benchmark Yield 0.02% 1.01% 0.28% * Benchmark value is the Interpolated Treasury Yield to the Portfolio's Avg. Weighted Maturity Compliance: It is the intention of the City Treasurer s office to ensure that our investments are in compliance with the maturity time limits and percentage allocation limits with all of our investments. The City is currently in compliance as demonstrated below: Partial List of Allowable Investment Instruments for Local Agencies Investment Type Local Agency Bonds U. S Treasury Obligations US Agency Obligations Negotiable Certificates of Deposit Medium Term Notes Local Agency Investment Fund (LAIF) Maximum Maturity Maximum Specified % of Portfolio Minimum Quality Requirements City of El Segundo Investments In Compliance Y/N 5 years None None 0.00% Y 5 years None None 0.00% Y 5 years None None 20.11% Y 5 years 30% None 10.65% Y 5 years 30% "A" Rating 4.81% Y N/A None None 38.2% Y Investment Environment: The current investment environment for the types of investments we are allowed to purchase remains one of very low returns, and uncertainty about future rate increases. Since security and liquidity are more important than rate of return in our policy, we are limited to very low risk investments which therefore have a lower interest rate. The Federal Reserve is looking to possibly raise rates in September of 2015, but the lower than desired inflation and erratic international markets are giving pause to that possible increase. While some economists believe that now is the time for an increase, others believe the increase will be pushed back to March 2016. While short-term rates have not changed very much from March 31 st to June 30 th, the long-term rates have increased to slightly above the March rates. This is the first quarter this year where the long-term rates have increased from the prior quarter. Page 2
The graphs and charts below show some of the key interest rates on items we invest in. As rates are expected to rise over the next few years, we want to time our investments to take advantage of the increases as they occur. 1.80 US Treasury Bonds Yield Curve as of 6/30/15 1.60 1.63 1.40 1.37 % Interest Rate 1.20 1.00 0.80 0.60 0.40 0.20 0.00 1.01 0.89 0.64 0.56 0.28 0.26 0.11 0.14 0.02 0.05 0.01 0.03 1 Mo 3 Mo 6 Mo 1 Yr 2 Yr 3 Yr 5 Yr 6/30/2015 3/31/2015 Composite Bond Rates (as of 6/30/15) US Treasury Bonds Maturity Yield Yesterday Last Week Last Month 3 Month 0.01 0 (0.01) (0.01) 6 Month 0.11 0.09 0.04 0.06 2 Year 0.64 0.62 0.67 0.60 3 Year 1.00 0.97 1.06 0.92 5 Year 1.64 1.61 1.69 1.48 Municipal Bonds Maturity Yield Yesterday Last Week Last Month 2yr AA 0.83 0.84 0.85 0.84 2yr AAA 0.81 0.84 0.87 0.76 2yr A 1.25 1.20 1.05 1.22 5yr AAA 1.43 1.41 1.46 1.47 5yr AA 1.46 1.47 1.52 1.58 5yr A 1.67 1.67 1.68 1.73 Page 3
Corporate Bonds Maturity Yield Yesterday Last Week Last Month 2yr AA 1.05 1.05 1.07 0.90 2yr A 1.24 1.23 1.26 1.11 5yr AAA 2.00 1.98 2.03 1.76 5yr AA 2.22 2.19 2.27 1.95 5yr A 2.47 2.43 2.50 2.24 Data provided by ValuBond. Source: http://finance.yahoo.com/bonds/composite_bond_rates Cash Flow Analysis: The chart below shows the historical cash flow for the last 12 months. We can see that the majority of our funds are received in the second quarter of the fiscal year, January thru March, primarily due to Business License Renewals and the annual Chevron Payment. We also receive Sales and UUT taxes during the first few months of the year as well. Our investments will be purchased with the liquidity relative to our cash flow needs. Rolling 12 Month Cash Flow Analysis 16,000,000 Total Receipts Total Disbursements Amount 14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 0 This chart shows the net change in Cash as related to the Cash Flow Analysis above. Some of the larger disbursements occur in the third and fourth quarters of the fiscal year. During Q-3, March to June, we have Page 4
a significant payment to CalPERS for our Other Post-Employment Benefits, and in Q-4, July- September, a payment to ICRMA for our citywide insurance premiums, and a large infrastructure payment for roadwork which was completed several years ago. 6,000,000 Rolling 12 Month Net Change in Cash Net Change in Cash 4,000,000 2,000,000 0 (2,000,000) (4,000,000) (6,000,000) Additional Economic Indicators: Economic Projections from September Meeting The Economic Indicators presented below are key items that the Federal Reserve will look at in deciding whether or not to change interest rates going forward. The GDP, or Gross Domestic Product, represents the market value of all goods and services produced by the economy during the period measured, including personal consumption, government purchases, private inventories, paid-in construction costs and the foreign trade balance (exports are added, imports are subtracted). This is a key indicator the Federal Reserve will look at when deciding on interest rate changes. The target level for GDP is in the 2.5% to 3.5% range. The Unemployment Rate shows the percentage of the labor force that is unemployed but seeking work. The target level for Unemployment is around 5.6%. The PCE Inflation is the Personal Consumption Expenditures rate of inflation. This index is essentially a measure of goods and services targeted toward individuals and consumed by individuals. The long term Page 5
inflation target is around 2% per year. Core PCE Inflation excludes items such as food and energy due to the nature of their potential price swings. Fed Economic Projections (central tendencies as of June 2015) 2015 2016 2017 Longer run Change in real GDP 1.8 to 2.0 2.4 to 2.7 2.1 to 2.5 2.0 to 2.3 March projection 2.3 to 2.7 2.3 to 2.7 2.0 to 2.4 2.0 to 2.3 Unemployment rate 5.2 to 5.3 4.9 to 5.1 4.9 to 5.1 5.0 to 5.2 March projection 5.0 to 5.2 4.9 to 5.1 4.8 to 5.1 5.0 to 5.2 PCE inflation 0.6 to 0.8 1.6 to 1.9 1.9 to 2.0 2.0 March projection 0.6 to 0.8 1.7 to 1.9 1.9 to 2.0 2.0 Core PCE inflation3 1.3 to 1.4 1.6 to 1.9 1.9 to 2.0 March projection 1.3 to 1.4 1.5 to 1.9 1.8 to 2.0 Unemployment Source: http://data.bls.gov/cgi-bin/surveymost?bls Page 6
Inflation: 2.5 Inflation Rates by Month 2.0 1.5 % 1.0 0.5 2014 2015 - (0.5) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 4.5 Average Inflation Rates by Year 4.0 3.5 3.0 2.5 % 2.0 1.5 1.0 0.5 - (0.5) (1.0) 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: http://www.usinflationcalculator.com/inflation/current-inflation-rates/ Page 7
355,000 Retail Trade & Food Services, ex Auto, US Total Seasonally Adjusted Sales (Millions of $) 350,000 345,000 2014 2015 340,000 335,000 330,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: United States Census Bureau - http://www.census.gov/retail/index.html Investment Strategy: It is the City and City Treasurer s policy to invest funds in accordance with the Investment Policy and to meet all legal requirements regarding the safeguarding of funds. As a part of the City s migration to a new banking structure, we have maintained a cash balance in order to offset our bank fees, and are now looking at our cash flow needs in order to determine which investments will maximize return while providing the proper level of liquidity. The Liquidity Schedule provides an overview of when our current investments are due to mature. We will plan our future investments to coordinate with these maturities in order to ensure a liquidity balance to our portfolio. The Investments by Security Type schedule provides an additional breakdown of how our funds are presently allocated. The Portfolio Summary for the month is included as an attachment to this report. Page 8
Additional Notes: The City has funds of $208,707.24 which belong to the El Segundo Senior Citizens Housing Development Corporation and are a part of our LAIF balance. There are also LAWA RSI (Los Angeles World Airports Residential Sound Insulation) funds of $18,909,868.08 included in the City s LAIF balances. The applicable interest for these accounts is accrued monthly and posted quarterly in the same manner as the regular City LAIF interest posting. Page 9
City of El Segundo Investment Advisory Committee Liquidity Schedule As of: June 30, 2015 Cumulative % of % of Total Total Item Availability Market Value Cumulative Balances Assets Assets Cash in Bank Chase Immediate $20,313,948.37 Union Bank - Trust Account Immediate $250,423.81 Cash in Bank - Total $20,564,372.18 $20,564,372.18 26.25% 26.25% L.A.I.F. (State of California) LAIF Immediate $11,012,335.65 $31,576,707.83 40.30% 14.05% Cash Immediate $31,576,707.83 L.A.I.F. - LAWA (Restricted) LAIF Immediate $18,909,868.08 $50,486,575.91 64.43% 24.13% Portfolio Investments: < 30 Days $849,418.24 $51,335,994.15 65.52% 1.08% 31 to 90 Days $248,215.76 $51,584,209.91 65.84% 0.32% 91 to 180 Days $1,247,540.01 $52,831,749.92 67.43% 1.59% 181 to 365 Days $1,001,350.00 $53,833,099.92 68.71% 1.28% 1 to 2 Years $6,875,800.02 $60,708,899.94 77.48% 8.78% 2 to 3 Years $12,152,360.92 $72,861,260.86 92.99% 15.51% 3 to 4 Years $4,501,045.00 $77,362,305.86 98.74% 5.74% 4 to 5 Years $990,927.50 $78,353,233.36 100.00% 1.26% Subtotal $46,776,525.53 Grand Total $78,353,233.36 100.00% Investment Portfolio subtotal $58,039,284.99 $25,000,000.00 Investments by Maturity Date Market $20,000,000.00 $15,000,000.00 $10,000,000.00 $5,000,000.00 $0.00 Page 10
City of El Segundo Investment Advisory Committee Investments by Security Type As of: June 30, 2015 Cumulative % of % of Total Total Item Availability Market Value Cumulative Balances Assets Assets Cash in Bank Chase Immediate $20,313,948.37 Union Bank - Trust Account Immediate $250,423.81 Cash in Bank - Total $20,564,372.18 $20,564,372.18 26.25% 26.25% L.A.I.F. (State of California) LAIF Immediate $11,012,335.65 $31,576,707.83 40.30% 14.05% Cash Immediate $31,576,707.83 L.A.I.F. - LAWA (Restricted) LAIF Immediate $18,909,868.08 $50,486,575.91 64.43% 24.13% Portfolio Investments: CD's $8,342,962.50 $58,829,538.41 75.08% 10.65% Gov't Obligations $15,753,147.45 $74,582,685.86 95.19% 20.11% Bonds $3,770,547.50 $78,353,233.36 100.00% 4.81% Subtotal $46,776,525.53 Grand Total $78,353,233.36 100.00% Investment Portfolio subtotal $58,039,284.99 Investments by Security Type $3,770,547.50 $15,753,147.45 $8,342,962.50 $20,564,372.18 $11,012,335.65 Cash Immediate LAIF Immediate LAIF - LAWA CD's Gov't Obligations Bonds $18,909,868.08 Page 11