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Quarterly Investment Report for 3 months ended 09-30-2018CITY OF ENCINITAS INVESTMENT REPORT MEMORANDUM Three Months Ended September 30, 2018 TO: City Council VIA: Karen P. Brust, City Manager ~ ;!)_~ ../-, FROM: Teresa S. McBroome, Director of Finance/City Treasurer DATE: November 28, 2018 SUBJECT: City of Encinitas Investment Report for the three (3) months ended September 30, 2018 It is the practice of the Finance Department to report on the status of City investments to the City Council on a periodic basis. Currently, the process is to report investment positions and results quarterly via memorandum, with attachments showing positions and earnings by investment and in summary. This report covers only the City's Pooled Investment fund (the "Pool.") It does not cover monies invested by the City's bond trustee, which are reported on an annual basis. The Pool had an investable balance of $106.9 million at September 30, 2018, compared to an average investable balance for the quarter of $113.0 million. The size of the pool varies throughout the year depending upon cash flow. Several factors have a significant impact on cash flow. Property tax revenue is received primarily in December, January, April and May, while debt payments typically fall in February, April, August and October. In addition, large payments on capital projects can happen throughout the year. The chart below shows the portfolio balance over the last five years. Monthly Portfolio Balance by Fiscal Year Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun End of Month Balance -FYlS-19 -FY17/18 -FY 16/17 -FYlS/16 -FY14/15 The City utilizes a variety of investment vehicles, including direct investments and indirect investments. Direct investments are primarily fixed income securities issued by the US Treasury and several US Gov't Agencies, such as the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC). Indirect investments include money market funds and pooled investments funds managed by other agencies , such as the California LAIF fund. Indirect investment balances are generally available to the City on a next day basis, and are classified as "liquid" meaning available to pay current demands. Monies invested in direct securities can only be accessed via the maturity of a security, or selling the security prior to maturity. The final maturities on our direct securities vary from less than one month to four years. The City has total liquidity, including cash in the bank , of $15.7 million at September 30, 2018. FY 2018-19 June 30, 2019 March 31 , 2019 Dec .31,2018 Sep . 30, 2018 Book Value $ 106,932,888 Market Value $ 105,492,981 Unrealized Gain/(Loss) $ (1,439,907) Unrealized Gain/Loss as% of Book Value -1 .3466% Effective Rate of Return 1.86% Average Yield To Maturity 1.93% Average Maturity (Years) 1.95 Investment Earnings Year to Date $ 530,070 The Pool earned $530,070 during the first three months of FY 2018-19 for an annualized return of 1.86%. This compares to the City's adopted performance benchmark of the one (1) year constant maturity Treasury index which averaged a 2.16% yield over the 12 months ended September 30 , 2018. The City informally utilizes an alternative benchmark of the two (2) year constant maturity Treasury index yield for comparison . This is a more appropriate comparison when the weighted-average maturity (WAM) of the Pool is greater than one year (the current WAM is 713 days or 1.95 years.) The 2 yr. T-note averaged about 1.82% during the period. City Portfolio Yield Compared to Treasury Indexes 1.60% 1.40% 1.20% 1.00% 0 .80% 0 .60% 0 .40% 0.20% 0.00% ~-------,,,,, - -City Portfolio ---2 Yr Treasury ------- 1 Yr Treasury ---6 Mth Treasury Due to increases in interest rates since many of the City's securities were purchased, the · market value of the City's direct investments is less than their carrying value by $1,439,907 as of September 30, 2018, meaning that the portfolio has unrealized losses on securities held. Since the City has never had to sell a security prior to maturity, any unrealized gains or losses would only constitute a timing difference . The public 's monies are extremely safe and well-diversified, and are in compliance with the City's adopted investment policy and the overall direction of the City Council. ATTACHMENTS-Portfolio Management and Interest Earnings Reports