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6.B. - Page 2 of 41 ANALYSIS The attached investment report indicates that as of September 30, 2020, funds (excluding cash with fiscal agents) from all sources were producing an annual earnings rate of 1.78%. The market value of the portfolio as of September 30 was $265,113,111. 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 $161,542,427. As of September 30, the portfolio was earning an annual yield at cost of 1.88%, and the yield at market was 0.42%. 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 September 30, 2020. The U.S. and global economic recoveries have been stronger than expected, however, in the U.S., the pace of recovery appears to be slowing. The Federal Reserve's (Fed) zero interest rate policy and market intervention has stabilized the bond market and returned liquidity in the financial markets. Yields remain very low and are not expected to move meaningfully over the next year. PFM's strategy this report period included a focus on portfolio safety with robust due diligence on credit and securitized products given the fragile economic environment. The portfolio's duration (a way to measure the sensitivity of a security's price if the market were to change) was targeted to match the benchmark duration — a strategy consistent with the high levels of market uncertainty and the expectation that rates will remain low for a prolonged period. Prior to the pandemic, the portfolio was structured with a higher -than -normal allocation to U.S. Treasuries; as market conditions have stabilized PFM has been cautiously reallocating this excess liquidity into other sectors, such as new issue federal agencies. Increased allocations to other investment-grade sectors boosted performance for the second consecutive quarter. Investment-grade corporate notes were a significant boon for performance during the quarter; supply was high due to lower borrowing rate environment, but investor demand was also high and as a result, allocation in this sector stayed about the same. The taxable municipal sector remained active; PFM increased its participation in new issue municipal debt during the quarter as the sector compared favorably compared to high-quality corporate issuers. Page 2 of 4 City of Redwood City 1017 Middlefield Road, Redwood City, CA. 94063 Tel: 650-780-7000 www.redwoodcity.ore 48 Total otal Return Effective Yield at verage-T Portfolio/Benchmark turn Quarter Since Inception Duration Market aturity ded 9/30/20 (12/31/16) A Treasury The U.S. and global economic recoveries have been stronger than expected, however, in the U.S., the pace of recovery appears to be slowing. The Federal Reserve's (Fed) zero interest rate policy and market intervention has stabilized the bond market and returned liquidity in the financial markets. Yields remain very low and are not expected to move meaningfully over the next year. PFM's strategy this report period included a focus on portfolio safety with robust due diligence on credit and securitized products given the fragile economic environment. The portfolio's duration (a way to measure the sensitivity of a security's price if the market were to change) was targeted to match the benchmark duration — a strategy consistent with the high levels of market uncertainty and the expectation that rates will remain low for a prolonged period. Prior to the pandemic, the portfolio was structured with a higher -than -normal allocation to U.S. Treasuries; as market conditions have stabilized PFM has been cautiously reallocating this excess liquidity into other sectors, such as new issue federal agencies. Increased allocations to other investment-grade sectors boosted performance for the second consecutive quarter. Investment-grade corporate notes were a significant boon for performance during the quarter; supply was high due to lower borrowing rate environment, but investor demand was also high and as a result, allocation in this sector stayed about the same. The taxable municipal sector remained active; PFM increased its participation in new issue municipal debt during the quarter as the sector compared favorably compared to high-quality corporate issuers. Page 2 of 4 City of Redwood City 1017 Middlefield Road, Redwood City, CA. 94063 Tel: 650-780-7000 www.redwoodcity.ore 48