AgdaPkt 2018-09-24 Joint SA PFA - Laserfiche WebLink

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6.1.C. - Page 2 cost of 2.02% and the yield at market was 2.74%. The average maturity of the portfolio was 2.65 years. The market benchmark, selected with consultation from the Council Finance/Audit Subcommittee, is the Bank of America Merrill Lynch (BofA ML) 1-5 year U.S. Treasury Index. Below is a table summarizing the City's portfolio performance compared to the benchmark, for second quarter 20181. Total Total Return Portfolio/Benchmark Return Since Inception (12/31/16) Redwood City 0.24% 0.47% Effective Yield at Duration Market 2.43 2.74% BofA ML 1-5 year U.S. 0.13% 0.27% 2.58 2.59% Treasury Index Average Maturity 2.65 years 2.77 years Economic data in the second quarter was favorable: inflation is near the Fed's 2% target, and strong labor market conditions continue. Most investment grade sectors contributed to positive excess returns (return in excess of similar duration Treasuries). The widening of corporate spreads in the first quarter was used as an opportunity to increase the portfolio's allocation to credit sectors, and in the second quarter, these corporate allocations helped drive portfolio outperformance relative to the benchmark. Supranationals continued to offer attractive yield advantage over comparable maturity Treasuries. Similarly, AAA rated asset-backed securities (ABS) generated attractive returns for the quarter, while providing a level of diversification to the credit allocations. Looking ahead, the Federal Reserve has indicated an expectation for two more interest rate increases in 2018, and three to four in 2019. As interest rates continue to increase, PFM will continue to maintain the portfolio with a defensive duration bias (keeping the duration at 95% of the benchmark) to help insulate market values in a raising interest rate environment. In the corporate sector, there is some weakening in certain industries as companies return capital to shareholders through dividends and share buybacks. Maintaining safety is the first objective in managing the City's portfolio, and as a result, PFM is especially selective with purchases in the corporate sector. Municipal market 1 Returns for periods under one year are periodic, all other returns are annualized. Performance excludes funds invested in the San Mateo County Treasurer's investment pool and State Treasurer's investment pool.