City of Santa Rosa Monthly Investment Report August 31, 2017 PFM Aset Management LLC 50 California Street Suite 2300 San Francisco, CA 94111 Paulina Woo, Director 415-982-5544 pfm.com 0
City s Investment Objectives Investment Objectives: In accordance with the City s Investment Policy, the City s primary objectives in order of priority are: Safety Safety of principal is the foremost objective of the investment program. Investments for the City will be made in a manner that seeks to ensure the preservation of capital in the overall portfolio. Liquidity The City s investment portfolio will remain sufficiently liquid to enable the City to meet all operating requirements which might be reasonably anticipated. Yield The City s investment portfolio shall be designed with the objective of attaining a market rate of return throughout budgetary and economic cycles, taking into account the investment risk constraints, liquidity needs, and cash flow characteristics of the portfolio. Certification: The City has sufficient funds to meet expenditures for the following six-month period. City of Santa Rosa Investment Policy dated April 9, 2013. 1
Investment Guidelines The City invests in permitted securities consistent with California Government Code sections 53601, 53635, and 16429.1. The City s Investment Policy includes additional sector allocation and maturity restrictions that reflect the City s risk tolerances. Security Type California Government Code City s Investment Policy U.S. Treasury Notes Federal Agencies International Bank for Reconstruction and Development, International Finance Corporation, or Inter-American Development Bank Bonds CA Municipal Investments State Municipals Corporate Notes Mortgage-Backed Securities Commercial Paper Time Certificates of Deposit Negotiable Certificates of Deposit Bankers Acceptances Repurchase Agreements Reverse Repurchase Agreements Mutual Funds Money Market Funds Local Government Pools Local Agency Investment Fund (LAIF) City of Santa Rosa Investment Policy dated April 9, 2013. 2
Market Summary Economic Conditions Domestic and global political turbulence may disrupt interest rate and stock market trends that have been intact for most of 2017. Tis the season of Federal spending and debt ceiling debates, complicated by hurricanes and existential threats on the Korean peninsula. U.S. economic growth continues, with gross domestic product (GDP) expanding at an annual rate of 3.0%, up from just 1.2% in the first quarter. Growth was driven in large part by strong personal consumption and business spending. The labor market added 156,000 jobs in August, below expectations, but was the 83rd straight month of job gains. The unemployment rate ticked up to 4.4%, while average hourly earnings saw a 2.5% year-over-year (YOY) increase, indicating slow wage growth. Employment and GDP figures are likely to be distorted for the balance of the year by Hurricane Harvey, and perhaps by Irma as well. While the U.S. economy has arguably reached near full employment, price inflation remains tepid. Future Fed action may depend on progress with inflation, and the emphasis is likely to shift from raising short-term rates to shrinking its bloated balance sheet. Market Reaction Investor anxiety over the U.S. debt ceiling caused yields on Treasuries with October maturities to spike, similar to reactions around prior debt ceiling deadlines. The Treasury Department has projected that it will run out of cash by early October unless the debt ceiling is raised. The need for a spending resolution before September 30 has exacerbated the uncertainty. The yield curve flattened further in August as short-maturity yields, which are closely aligned to the unchanged Federal funds rate, were all but unchanged. The yield on 10-year Treasury notes fell 18 basis points (bps) to 2.12%, a low for the year. The 30-year Treasury fell 17 bps to 2.73%. Yield spreads on federal agencies remained narrow, as did those of corporates, amidst strong investor demand and a reach-for-yield mentality. Short-term credit instruments, such as commercial paper and bank certificates of deposit, continue to offer value over similar-maturity alternatives, although yield spreads have come in from the attractive levels generated by last year s money market reform. 3
Portfolio Information Summary Funds Included in Report The following report includes the City s funds held in overnight investment vehicles (savings accounts, money market funds, and CA state investment pool) and a portfolio of individual fixed income securities (operating and bond proceeds). Portfolio Summary and Characteristics Funds are shown on a par, amortized cost, and market value basis. Par Value. Face value, stated value, or maturity value of a security. Amortized Cost Value (Book Value). Represents the original cost of an investment adjusted for amortization of premium or accretion of discount. Market Value. The current price at which that security is trading between buyers and sellers. Valuation highly dependent on interest rate movements. The investment sector and credit ratings distribution is shown based on market value basis. Demonstrates level of diversification by investment type and credit quality. Additionally, illustrates active management of funds to optimize value in the current market. Investment Program Maturity Summary The maturity distribution of the City s funds (market value plus accrued interest) from one day to the five-year mandated limit. The percentage change in maturity distribution month-over-month is shown in the table. Demonstrates level of diversification by maturity date. Shows placement of funds to take advantage of opportunities while ensuring that the City has funds to meet its cash flow needs. Portfolio Yield Summary The historical yield and duration of the City s funds, effective monthly yield for the California Local Government Investment Fund (LAIF), and the monthly yield for the Bank of America/Merrill Lynch 1 3 year Treasury Index is shown for the trailing six months. A historical record of the City s overall fund balance and earnings rates. 4
Portfolio Summary and Characteristics August 31, 2017 Security Type Par Value Amortized Cost Value 1 Market Value 1 % of Portfolio 3 U.S. Treasury $108,655,000 $109,074,135 $109,199,261 28% Federal Agency $97,493,000 $97,537,270 $97,086,311 25% Federal Agency Mortgage-Backed $4,885,507 $4,910,906 $4,893,685 1% Negotiable CD $59,815,000 $60,086,386 $60,214,304 16% FDIC-Insured CD $1,176,880 $1,179,694 $1,175,248 <1% Corporate Notes $60,989,000 $61,296,839 $61,436,279 16% Commercial Paper $4,875,000 $4,875,000 $4,874,845 1% Municipal Bond $3,525,000 $3,532,930 $3,503,211 1% Discount Note $931,000 $931,000 $930,975 <1% Liquid Funds 2 $39,936,503 $39,936,503 $39,936,503 10% Total Value $382,281,889 $383,360,663 $383,250,622 100% Agency MBS 1% Discount Note <1% Liquid Funds 10% Municipal Bond 1% Commercial Paper 1% Corporate Note 16% U.S. Treasury 28% Federal Agency 25% Negotiable CD FDIC-Insured CD 16% <1% BBB+ 4 1% A-1 1% A-1+ 1% A- 3% A 4% A+ 12% MMF NR 8% 3% AA- 9% AA 1% AAA 1% AA+ 56% Ratings by Standard & Poor s 1. Security market values include accrued interest as of trade date. 2. Liquid Funds include the City s LAIF, PFM Funds-Prime Money Market Fund, Wells Fargo Peg & Sweep, and custody account cash balances. 3. Based on market value plus accrued interest. Percentages may not add exactly to 100% due to rounding. 4. Credit rating for security was compliant at the time of purchase. City has elected to hold security until it is advantageous to sell or to maturity. 5
Investment Program Maturity Summary Maturity 1 Market Value 2 August 31, 2017 July 31, 2017 % of Portfolio % of Portfolio Under 6 Months $47,081,484 12% 11% 6-12 Months $27,664,491 7% 8% 1-2 Years $166,161,685 43% 42% 2-3 Years $134,168,865 35% 36% 3-4 Years $8,174,097 2% 3% 4-5 Years $0 0% 0% Total Market Value $383,250,622 100% 100% 80% Maturity Distribution 2 60% August 31, 2017 July 31, 2017 40% 43% 42% 35% 36% 20% 0% 12% 11% 7% 8% 2% 3% 0% 0% Under 6 Months 6-12 Months 1-2 Years 2-3 Years 3-4 Years 4-5 Years 1. Funds held in LAIF are included in the under 6-month range because they can be accessed within one day. 2. Security market values include accrued interest as of trade date. Values may not sum exactly to 100% due to rounding. 6
Portfolio Yield Summary Date Market Value 1 Portfolio Portfolio Yield LAIF Yield 1-3 Year Treasury Duration (Cost) (Monthly Effective) 2 Index Yield 2 Feb-17 $371,278,723 1.52 1.19% 0.78% 1.17% Mar-17 $371,292,136 1.47 1.22% 0.82% 1.26% Apr-17 $399,465,467 1.51 1.25% 0.88% 1.26% May-17 $398,552,784 1.50 1.28% 0.93% 1.28% Jun-17 $398,160,931 1.55 1.32% 0.98% 1.39% Jul-17 $381,000,613 1.61 1.36% 1.05% 1.35% Aug-17 $383,250,622 1.66 1.39% 1.08% 1.32% 1.40% Comparison of Combined Portfolio Yield, BAML 1-3 Year Treasury Index 2, and LAIF 3 1.20% 1.00% 0.80% 0.60% 0.40% 0.20% Aug 16 Sep 16 Oct 16 Nov 16 Dec 16 Jan 17 Feb 17 Mar 17 Apr 17 May 17 Jun 17 Jul 17 Aug 17 Portfolio Yield at Cost LAIF 1-3 Year UST Index Yield 1. Security market values include accrued interest as of trade date. 2. Source: Bank of America/Merrill Lynch Global Bond Indices 3. Source: California State Treasurer s Website. Average monthly effective yield. 7
CITY OF SANTA ROSA (PFM) Trade Settle Security Description CUSIP Par Proceeds BUY 08/03/17 08/03/17 08/25/17 08/31/17 08/31/17 08/03/17 US TREASURY NOTES DTD 08/31/2015 1.375% 08/31/2020 08/04/17 SKANDINAV ENSKILDA BANKEN NY CD DTD 08/04/2017 1.840% 08/02/2019 08/07/17 WESTPAC BANKING CORP NY CD DTD 08/07/2017 2.050% 08/03/2020 08/30/17 VISA INC (CALLABLE) CORP NOTES DTD 12/14/2015 2.200% 12/14/2020 09/01/17 UNITED STATES TREASURY NOTES DTD 03/02/2015 1.375% 02/29/2020 09/01/17 FNMA NOTES DTD 08/01/2017 1.500% 07/30/2020 912828L32 6,000,000.00 (5,973,750.00) (34,972.83) (6,008,722.83) 83050FXT3 6,675,000.00 (6,672,396.75) 0.00 (6,672,396.75) 96121T4A3 5,990,000.00 (5,990,000.00) 0.00 (5,990,000.00) 92826CAB8 825,000.00 (834,075.00) (3,831.67) (837,906.67) 912828J50 8,400,000.00 (8,399,671.88) (319.06) (8,399,990.94) 3135G0T60 6,475,000.00 (6,476,683.50) (8,093.75) (6,484,777.25) 34,365,000.00 (34,346,577.13) (47,217.31) (34,393,794.44) INTEREST 08/02/17 08/04/17 08/06/17 08/07/17 MONEY MARKET FUND MONEY0002 0.00 0.00 196.07 196.07 08/25/17 FNMA SERIES 2015-M7 ASQ2 DTD 04/01/2015 1.550% 04/01/2018 08/25/17 FNMA SERIES 2016-M9 ASQ2 DTD 06/01/2016 1.785% 06/01/2019 08/25/17 FANNIE MAE SERIES 2015-M13 ASQ2 DTD 10/01/2015 1.646% 09/01/2019 08/25/17 FNMA SERIES 2015-M15 ASQ2 DTD 11/01/2015 1.898% 01/01/2019 08/02/17 FNMA BENCHMARK NOTE DTD 08/02/2016 0.875% 08/02/2019 08/04/17 APPLE INC CORP NOTES DTD 08/04/2016 1.100% 08/02/2019 08/06/17 MICROSOFT CORP DTD 02/06/2017 1.850% 02/06/2020 08/07/17 FHLB NOTES DTD 07/08/2016 0.625% 08/07/2018 3136ANJY4 1,052,155.87 0.00 1,359.03 1,359.03 3136ASPX8 1,004,365.96 0.00 1,493.99 1,493.99 3136AQDQ0 2,143,215.25 0.00 3,124.07 3,124.07 3136AQSW1 1,160,000.00 0.00 2,367.07 2,367.07 3135G0N33 9,200,000.00 0.00 40,250.00 40,250.00 037833CB4 2,900,000.00 0.00 15,950.00 15,950.00 594918BV5 1,405,000.00 0.00 12,996.25 12,996.25 3130A8PK3 7,750,000.00 0.00 24,218.75 24,218.75 8
CITY OF SANTA ROSA (PFM) Trade Settle Security Description CUSIP Par Proceeds INTEREST 08/07/17 08/07/17 08/08/17 08/14/17 08/15/17 08/15/17 08/19/17 08/23/17 08/26/17 08/26/17 08/28/17 08/28/17 08/31/17 08/07/17 FHLB NOTES DTD 07/08/2016 0.625% 08/07/2018 08/07/17 BANK OF MONTREAL CHICAGO CERT DEPOS DTD 02/09/2017 1.880% 02/07/2019 08/08/17 MICROSOFT CORP NOTES DTD 08/08/2016 1.100% 08/08/2019 08/14/17 AMERICAN HONDA FINANCE DTD 02/16/2017 2.000% 02/14/2020 08/15/17 BERKSHIRE HATHAWAY INC GLOBAL NOTES DTD 08/15/2016 1.150% 08/15/2018 08/15/17 CT ST TXBL GO BONDS DTD 08/17/2016 1.300% 08/15/2019 08/19/17 TOYOTA MOTOR CREDIT CORP DTD 02/19/2016 1.700% 02/19/2019 08/23/17 APPLE INC CORP NOTES DTD 02/23/2016 1.700% 02/22/2019 08/26/17 FNMA BENCHMARK NOTE DTD 02/23/2016 1.000% 02/26/2019 08/26/17 FNMA BENCHMARK NOTE DTD 02/23/2016 1.000% 02/26/2019 08/28/17 FNMA NOTES DTD 02/28/2017 1.500% 02/28/2020 08/28/17 FNMA NOTES DTD 09/02/2016 1.000% 08/28/2019 08/31/17 US TREASURY NOTES DTD 08/31/2015 1.375% 08/31/2020 3130A8PK3 1,500,000.00 0.00 4,687.50 4,687.50 06427KRC3 5,850,000.00 0.00 54,379.00 54,379.00 594918BN3 1,915,000.00 0.00 10,532.50 10,532.50 02665WBM2 1,365,000.00 0.00 13,498.33 13,498.33 084670BX5 700,000.00 0.00 4,025.00 4,025.00 20772J3D2 3,175,000.00 0.00 20,637.50 20,637.50 89236TCU7 2,675,000.00 0.00 22,737.50 22,737.50 037833BQ2 900,000.00 0.00 7,650.00 7,650.00 3135G0J53 7,250,000.00 0.00 36,250.00 36,250.00 3135G0J53 7,250,000.00 0.00 36,250.00 36,250.00 3135G0T29 3,675,000.00 0.00 27,562.50 27,562.50 3135G0P49 14,075,000.00 0.00 70,375.00 70,375.00 912828L32 6,000,000.00 0.00 41,250.00 41,250.00 82,944,737.08 0.00 451,790.06 451,790.06 PAYDOWNS 08/25/17 FNMA SERIES 2015-M15 ASQ2 DTD 11/01/2015 1.898% 01/01/2019 3136AQSW1 219,250.99 219,250.99 0.00 219,250.99 (2,192.49) 0.00 9
CITY OF SANTA ROSA (PFM) Trade Settle Security Description CUSIP Par Proceeds PAYDOWNS 08/25/17 FNMA SERIES 2015-M7 ASQ2 DTD 04/01/2015 1.550% 04/01/2018 08/25/17 FNMA SERIES 2016-M9 ASQ2 DTD 06/01/2016 1.785% 06/01/2019 08/25/17 FANNIE MAE SERIES 2015-M13 ASQ2 DTD 10/01/2015 1.646% 09/01/2019 3136ANJY4 129,313.72 129,313.72 0.00 129,313.72 (1,292.67) 0.00 3136ASPX8 72,227.65 72,227.65 0.00 72,227.65 (722.24) 0.00 3136AQDQ0 53,437.96 53,437.96 0.00 53,437.96 (535.12) 0.00 474,230.32 474,230.32 0.00 474,230.32 (4,742.52) 0.00 SELL 08/03/17 08/03/17 08/03/17 08/03/17 08/03/17 08/25/17 08/25/17 08/25/17 08/31/17 08/03/17 US TREASURY NOTES DTD 09/30/2011 1.375% 09/30/2018 08/04/17 SKANDINAVISKA ENSKILDA BANKEN NY CD DTD 11/17/2015 1.480% 11/16/2017 08/04/17 TEXAS INSTRUMENTS CORP NOTE DTD 05/08/2013 1.000% 05/01/2018 08/04/17 WELLS FARGO & COMPANY NOTES DTD 12/10/2007 5.625% 12/11/2017 08/07/17 TEXAS INSTRUMENTS CORP NOTE DTD 05/08/2013 1.000% 05/01/2018 08/07/17 BANK OF NEW YORK MELLON CORP (CALLABLE) DTD 05/29/2015 1.600% 05/22/2018 08/29/17 FHLB NOTES DTD 07/08/2016 0.625% 08/07/2018 08/29/17 FHLB NOTES DTD 07/08/2016 0.625% 08/07/2018 08/29/17 TOYOTA MOTOR CREDIT CORP DTD 07/13/2015 1.550% 07/13/2018 09/01/17 GLAXOSMITHKLINE CAP INC NOTES DTD 05/13/2008 5.650% 05/15/2018 912828RH5 5,000,000.00 5,004,687.50 23,480.19 5,028,167.69 (4,492.19) (2,887.20) FIFO 83050FBG5 5,500,000.00 5,502,788.56 59,015.00 5,561,803.56 2,788.56 2,788.56 FIFO 882508AV6 300,000.00 299,094.00 775.00 299,869.00 2,445.00 (92.72) FIFO 949746NX5 810,000.00 822,004.20 6,707.81 828,712.01 (78,108.30) (312.04) FIFO 882508AV6 3,110,000.00 3,100,701.10 8,293.33 3,108,994.43 25,439.80 (962.20) FIFO 06406HDB2 2,900,000.00 2,902,407.00 9,666.67 2,912,073.67 2,668.00 2,478.43 FIFO 3130A8PK3 1,500,000.00 1,491,015.00 572.92 1,491,587.92 (5,865.00) (7,570.85) FIFO 3130A8PK3 7,200,000.00 7,156,872.00 2,750.00 7,159,622.00 (17,352.00) (30,893.54) FIFO 89236TCP8 1,300,000.00 1,300,611.00 2,574.72 1,303,185.72 1,716.00 937.52 FIFO 377372AD9 1,000,000.00 1,029,320.00 16,636.11 1,045,956.11 (102,810.00) (1,152.18) FIFO 10
CITY OF SANTA ROSA (PFM) Trade Settle Security Description CUSIP Par Proceeds SELL 08/31/17 08/31/17 08/31/17 09/01/17 FHLB GLOBAL NOTE DTD 08/26/2016 0.875% 10/01/2018 09/01/17 FHLMC REFERENCE NOTE DTD 09/16/2016 0.875% 10/12/2018 09/01/17 FHLB NOTES DTD 07/08/2016 0.625% 08/07/2018 3130A9AE1 6,110,000.00 6,082,260.60 22,276.04 6,104,536.64 (23,584.60) (25,578.78) FIFO 3137EAED7 7,100,000.00 7,066,843.00 23,987.15 7,090,830.15 (30,104.00) (31,504.55) FIFO 3130A8PK3 550,000.00 546,766.00 229.17 546,995.17 (1,265.00) (2,304.95) FIFO 42,380,000.00 42,305,369.96 176,964.11 42,482,334.07 (228,523.73) (97,054.50) Managed Account Sub-Total 8,433,023.15 581,536.86 9,014,560.01 (233,266.25) (97,054.50) Total Security Transactions $8,433,023.15 $581,536.86 $9,014,560.01 ($233,266.25) ($97,054.50) Bolded items are forward settling trades. 11
CITY OF SANTA ROSA Trade Settle Security Description CUSIP Par Proceeds INTEREST 08/20/17 08/20/17 WELLS FARGO BANK NA FDIC CD DTD 09/20/2016 0.420% 09/20/2018 RE1253765 187,647.00 0.00 66.94 66.94 187,647.00 0.00 66.94 66.94 Managed Account Sub-Total 0.00 66.94 66.94 Total Security Transactions $0.00 $66.94 $66.94 12
SANTA ROSA FNTNGROVE 2011 A RESERVE FUND Trade Settle Security Description CUSIP Par Proceeds INTEREST 08/07/17 08/28/17 MONEY MARKET FUND MONEY0002 0.00 0.00 0.80 0.80 08/07/17 FHLB NOTES DTD 07/08/2016 0.625% 08/07/2018 08/28/17 FNMA NOTES DTD 09/02/2016 1.000% 08/28/2019 3130A8PK3 300,000.00 0.00 937.50 937.50 3135G0P49 297,000.00 0.00 1,485.00 1,485.00 597,000.00 0.00 2,423.30 2,423.30 Managed Account Sub-Total 0.00 2,423.30 2,423.30 Total Security Transactions $0.00 $2,423.30 $2,423.30 13
SANTA ROSA SKYHAWK 2011A RESERVE FUND Trade Settle Security Description CUSIP Par Proceeds INTEREST 08/07/17 08/28/17 MONEY MARKET FUND MONEY0002 0.00 0.00 0.41 0.41 08/07/17 FHLB NOTES DTD 07/08/2016 0.625% 08/07/2018 08/28/17 FNMA NOTES DTD 09/02/2016 1.000% 08/28/2019 3130A8PK3 110,000.00 0.00 343.75 343.75 3135G0P49 118,000.00 0.00 590.00 590.00 228,000.00 0.00 934.16 934.16 Managed Account Sub-Total 0.00 934.16 934.16 Total Security Transactions $0.00 $934.16 $934.16 14
SANTA ROSA WATER 2008 RSV AC Trade Settle Security Description CUSIP Par Proceeds INTEREST 08/07/17 08/28/17 MONEY MARKET FUND MONEY0002 0.00 0.00 1.59 1.59 08/07/17 FHLB NOTES DTD 07/08/2016 0.625% 08/07/2018 08/28/17 FNMA NOTES DTD 09/02/2016 1.000% 08/28/2019 3130A8PK3 450,000.00 0.00 1,406.25 1,406.25 3135G0P49 448,000.00 0.00 2,240.00 2,240.00 898,000.00 0.00 3,647.84 3,647.84 Managed Account Sub-Total 0.00 3,647.84 3,647.84 Total Security Transactions $0.00 $3,647.84 $3,647.84 15
SANTA ROSA 2014A WASTEWATER PROJECT FUND Trade Settle Security Description CUSIP Par Proceeds INTEREST MONEY MARKET FUND MONEY0002 0.00 0.00 81.50 81.50 0.00 0.00 81.50 81.50 Managed Account Sub-Total 0.00 81.50 81.50 Total Security Transactions $0.00 $81.50 $81.50 16
SANTA ROSA WSTWTR REV BDS COM RES Trade Settle Security Description CUSIP Par Proceeds INTEREST 08/07/17 08/07/17 08/28/17 08/31/17 MONEY MARKET FUND MONEY0002 0.00 0.00 1.68 1.68 08/07/17 FHLB NOTES DTD 07/08/2016 0.625% 08/07/2018 08/07/17 FHLB NOTES DTD 07/08/2016 0.625% 08/07/2018 08/28/17 FNMA NOTES DTD 09/02/2016 1.000% 08/28/2019 08/31/17 US TREASURY NOTES DTD 08/31/2015 1.375% 08/31/2020 3130A8PK3 60,000.00 0.00 187.50 187.50 3130A8PK3 5,835,000.00 0.00 18,234.38 18,234.38 3135G0P49 1,250,000.00 0.00 6,250.00 6,250.00 912828L32 1,350,000.00 0.00 9,281.25 9,281.25 8,495,000.00 0.00 33,954.81 33,954.81 Managed Account Sub-Total 0.00 33,954.81 33,954.81 Total Security Transactions $0.00 $33,954.81 $33,954.81 17