AgdaPkt 2020-05-18 Joint SA PFA - Laserfiche WebLink

Browse Search

6.13. - Page 7 of 46 REDWOOD CITY Portfolio Recap • Our strategy throughout the first quarter included the following elements: For the Quarter Ended March 31, 2020 Portfolio Review • PFM took a proactive response to the emerging crisis and fast-moving markets by further emphasizing safety and liquidity in the portfolio's strategy, as well as holding frequent ad-hoc Credit and Investment Committee meetings to assess emerging news and market trends. Our first step was to restrict all new credit and ABS purchases. • We enhanced the liquidity profile of the portfolio by increasing our target allocation of U.S. Treasuries and federal agencies while also reassessing the portfolio's potential near-term cash needs. • The portfolio's duration was maintained in line with the benchmark, which has been an important element in sustaining performance over the past several years. • In the federal agency sector, yield spreads widened to levels not seen since 2009. PFM viewed this as an opportunity to capture relative value on a safe haven asset class and therefore increased agency allocations. • Entering the quarter, we had a modestly defensive posture on corporate credit, reflective of our eye on narrow yield spreads and concerns about overall increased leverage by issuers in the sector. • Investment grade corporate bond spreads widened significantly in the second half of the quarter, although not to the same degree as during the 2008-09 financial crisis. The move in spreads resulted in significant negative excess returns in the sector to the tune of 200 to 400 basis points (-2% to -4%), depending on credit quality, industry, and maturity. The unprecedented economic conditions will stress many companies' revenue, profits, liquidity, and credit ratings. PFM has undertaken a wholesale review of all issuers on our approved list and redoubled our ongoing monitoring and due diligence efforts. Asset-backed securities (ABS) also generated significant negative excess returns as spreads widened sharply from recent lows to 10 -year wides (again, not reaching 2008-09 levels). All new ABS purchases were halted, and cash flows were reallocated to U.S. Treasuries and federal agencies to improve portfolio liquidity. Both taxable and tax-exempt municipals generated negative excess returns as spreads widened amid revenue concerns. Wider spreads offered value, but supply was limited and liquidity was very poor. PFM Asset Management LLC 65