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6.A. - Page 6 of 37 <br />REDWOOD CITY <br />Portfolio Recap <br />Attachment A <br />For the Quarter Ended March 31, 2019 <br />Portfolio Review <br />• Continuing the trend from the fourth quarter of 2018, interest rates moved lower during the first quarter of 2019, as the Fed stated <br />it has no plans for further rate action in 2019. However, in a strong reversal from the prior quarter, equity markets rebounded, <br />credit spreads tightened and volatility decreased. <br />• U.S. Treasury yields with maturities beyond one year fell 20-30 basis points (0.20% to 0.30%). In the last week of the quarter, the <br />3 -month to 10 -year part of the yield curve inverted temporarily, renewing concerns about a possible recession. <br />• Our portfolio strategy included the following elements: <br />• Because of the maturity of the current business cycle, slower growth prospects, and a Fed now on hold for further rate <br />hikes, we removed our defensive bias with regard to portfolio duration (duration positioning short of the benchmark), a <br />strategy that had been in place for much of 2017-18 while rates were rising. We are now targeting a duration that is in line <br />with the benchmark. <br />• Sector allocation strategy continued to favor broad diversification, generally including the widest range of permitted <br />investments. While the fourth quarter flight to safer assets resulted in Treasuries being the best performing sector, the first <br />quarter's rebound generated strong excess returns for the portfolio as most fixed income sectors outperformed similar <br />duration Treasuries. <br />• With agency spreads near historic lows, we continued to favor Treasuries in the government space. We found some value <br />in agencies, primarily with new issues that offered wider than average yield spreads. <br />• After corporate yield spreads increased to their widest levels in over two years in the fourth quarter, we sought opportunities <br />to maintian exposure in the sector as spreads moved tighter throughout the first quarter. <br />• We found asset-backed securities (ABS) to be an attractive and alternative outlet to other credit instruments, as ABS <br />typically experiences less volatility than corporates during periods of stress. <br />PFM Asset Management LLC is <br />