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6.B. - Page 2 of 46 ANALYSIS The attached investment report indicates that as of March 31, 2020, funds (excluding cash with fiscal agents) from all sources were producing an annual earnings rate of 2.13%. This is down from 2.25% for the quarter ending December 31, 2019. The market value of the portfolio as of March 31, 2020 was $279,755,297. This includes the funds held in the San Mateo County Treasurer's investment pool and with the State Treasurer's investment pool. All of these investments comply with the City's investment policy. The City has sufficient liquid resources available to meet expenditure requirements for the next six months. The portion of the City's portfolio that is managed by PFM has a total market value of $168,678,516. As of March 31, the portfolio was earning an annual yield at cost of 2.24%, and the yield at market was 0.99%. The average maturity of the portfolio was 2.78 years. The market benchmark, selected with consultation from the City 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 the period ending March 31, 2020. As expressed in the attached report, although the U.S. economy entered the year on strong footing, conditions deteriorated quickly as the COVID-19 pandemic took hold across the globe. There is still much uncertainty regarding the continued spread and duration of the novel coronavirus, and forecasts for economic growth vary greatly among economists. Some expect a sharp contraction followed by a quick rebound, and others forecast a more protracted contraction followed by a gradual recovery. Treasury yields plunged in response to the Fed's new zero interest rate policy, with longer-term Treasury yields reaching new historic lows. These moves led to positive returns on Treasury indices, and as a result, the City's portfolio delivered strong absolute performance for the past quarter and the past year. This gain is likely to continue through the second quarter of 2020. However, in a move reminiscent of 2008, yield spreads on all other asset classes spiked as investors grappled with unprecedented uncertainty. The portfolio's diversification in asset classes that normally create significant economic benefit was a major detractor. This diversification caused the portfolio to underperform its U.S. Treasury benchmark. Markets have calmed significantly in recent weeks, largely as a result of the massive intervention by the Federal Reserve. This enabled non-government holdings to regain some market value relative to U.S. Treasury securities. PFM's Credit Committee and Investment Committee are meeting several times a week Page 2 of 4 City of Redwood City 1017 Middlefield Road, Redwood City, CA. 94063 Tel: 650-780-7000 www.redwoodcity.ore Total otal Return Effective Yield Portfolio/Benchmark raided turn Quarter mce Inception DuratioiWarklet raturityerage 3/31/20 (12/31/16) A Treasury As expressed in the attached report, although the U.S. economy entered the year on strong footing, conditions deteriorated quickly as the COVID-19 pandemic took hold across the globe. There is still much uncertainty regarding the continued spread and duration of the novel coronavirus, and forecasts for economic growth vary greatly among economists. Some expect a sharp contraction followed by a quick rebound, and others forecast a more protracted contraction followed by a gradual recovery. Treasury yields plunged in response to the Fed's new zero interest rate policy, with longer-term Treasury yields reaching new historic lows. These moves led to positive returns on Treasury indices, and as a result, the City's portfolio delivered strong absolute performance for the past quarter and the past year. This gain is likely to continue through the second quarter of 2020. However, in a move reminiscent of 2008, yield spreads on all other asset classes spiked as investors grappled with unprecedented uncertainty. The portfolio's diversification in asset classes that normally create significant economic benefit was a major detractor. This diversification caused the portfolio to underperform its U.S. Treasury benchmark. Markets have calmed significantly in recent weeks, largely as a result of the massive intervention by the Federal Reserve. This enabled non-government holdings to regain some market value relative to U.S. Treasury securities. PFM's Credit Committee and Investment Committee are meeting several times a week Page 2 of 4 City of Redwood City 1017 Middlefield Road, Redwood City, CA. 94063 Tel: 650-780-7000 www.redwoodcity.ore