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For the Quarter Ended September 30, 2016 <br />Outlook and Strategy <br />Fourth Quarter 2016 –PFMAM’s Outlook and Strategy <br />•Portfolio strategy continues to favor allocation to credit sectors, including corporate notes and commercial paper. <br />PFMAM will continue to look for opportunities to add high quality credit instruments to the portfolio to increase <br />diversification and earnings potential. <br />•The best opportunities in the corporate sector are currently with issuers in the financial industry where capital is strong <br />and valuations are fair. <br />•Yields on commercial paper continue to offer significant yield pickup relative to short-term government securities as <br />October money market reform has kept spread levels elevated. <br />•The agency MBS sector will continue to be evaluated, purchasing those issues that are well structured, offer adequate <br />yield spreads, and which have limited duration variability, providing further portfolio diversification when seeking <br />incremental return. <br />•Agency yield spreads moved modestly tighter during the third quarter but still offer value in certain maturities. New <br />issues, which typically offer a yield concession, offer the best opportunities. <br />•The portfolio will continue to be to transitioned to its 1-5 year strategy, eventually targeting a duration and maturity <br />distribution generally in line with the distribution of the benchmark, except where shifting to short -term credit <br />securities offers better value <br />•Incoming economic data will be monitored to assess and confirm the prospect for a Fed rate hike by year -end. <br />2016 PFM Asset Management LLC <br />REDWOOD CITY, CA <br />9 <br />6. <br />1 <br />. <br />C <br />. <br /> <br />- <br /> <br />P <br />a <br />g <br />e <br /> <br />1 <br />4 <br />