Treasury Oversight Committee May 17, 2019 City Hall - Room 140 1 - PowerPoint PPT Presentation

Office of the Treasurer & Tax Collector City and County of San Francisco José Cisneros, Treasurer Tajel Shah, Chief Assistant Treasurer Robert L. Shaw, CFA, Chief Investment Officer Treasury Oversight Committee May 17, 2019 City Hall - Room 140 ● 1 Dr. Carlton B. Goodlett Place ● San Francisco, CA 94102-4638 Telephone: 415-554-5210 ● Facsimile: 415-554-5660

Table of Contents Economic & Market Overview 3-5 Strategy 6-8 The Economic Outlook 9-13 Pooled Fund Review 14-17 Pool Participants Breakdown 18-19 April Monthly Report 2019 Separate handout 2

Key Economic Data Producer Price Index vs Consumer Price Index Gross Domestic Product 5% 61 4.5% Core CPI Core PPI CPI PPI 4% 59 3.5% 3% 57 2% 2.5% 1% 55 0% 1.5% 53 -1% 0.5% -2% 51 -3% GDP Year-over-Year Change -0.5% 49 ISM Manufacturing PMI -4% ISM Non-Manufacturing PMI -1.5% -5% 47 3/15 3/16 3/17 3/18 3/19 3/15 3/16 3/17 3/18 3/19 Employment JOLTS & Jobless Claims 12% 700K 9,000K Wage Growth 66% 8,000K Wage Growth & Unemployment Rate 600K Labor Participation Rate 10% 7,000K Unemployment Rate Labor Participation Rate 500K 65% 8% 6,000K 400K 5,000K 6% 64% 4,000K 300K 4% 3,000K 200K 63% 2,000K 2% 100K US Initial Jobless Claims US Job Openings 1,000K 62% 0% 0K 0K 3/09 3/11 3/13 3/15 3/17 3/19 3/09 3/11 3/13 3/15 3/17 3/19 3 Source: Bloomberg

Key Economic Data Housing 6 800K Existing Homes Sales New Home Sales Millions 700K 5 600K 4 500K 3 400K 300K 2 200K 1 100K 0 0K 3/09 3/10 3/11 3/12 3/13 3/14 3/15 3/16 3/17 3/18 3/19 S&P/Case-Shiller Home Price Indices 300 20 Metro Composite San Francisco Area 250 200 150 100 2/09 2/10 2/11 2/12 2/13 2/14 2/15 2/16 2/17 2/18 2/19 4 Source: Bloomberg

Yield Curve Changes 3.0% 2.9% 2.8% 2.7% 2.6% 2.5% 2.4% UST Yields 1/25/19 4/30/19 Change 2.3% 3M 2.37 2.41 0.04 6M 2.50 2.44 -0.06 2.2% 1Y 2.58 2.37 -0.21 2Y 2.61 2.27 -0.34 2.1% 3Y 2.59 2.24 -0.35 5Y 2.60 2.28 -0.32 2.0% 3M 1Y 2Y 3Y 5Y UST Yield Curve as of 11/16/2018 UST Yield Curve as of 01/25/2019 UST Yield Curve as of 04/30/2019 5 Source: Bloomberg

Strategic Considerations Policy Issues: • Monetary – “Pause” is now Policy: • Future Rate increases are now uncertain; and • 2019 Rate Increase Probabilities: • Now at < 1%. • Fiscal: • Tax Reform – No Change: • Corporate. Mostly for Buybacks; • Repatriation of Earnings, but not investing in factories / jobs in US; and • Individual. One-time Bonus, not Pay Raises. • Tariffs: Shifting demand to domestic supplies; and • Trade: The New NAFTA & China. 6

Strategic Considerations Government Policy Issues: • Federal Reserve’s Balance Sheet - $4.5 Trillion (Fall 2017): • $4.0 Trillion (March2019); and • Run-off of Balance Sheet to Halt in September. 7

Strategic Considerations Portfolio Issues: • Inflows: Property Taxes – April 10, 2019; • SFO - $900 Million (February 2019); and • Certain receipts, Teacher Living Wage, Commercial Real Estate and • Homeless, are in the Pool, but are not being spent. • Use Money Market Sector to Satisfy Liquidity Needs • Portfolio Duration: 0.85 (April 2019): 0.99 December 2018; • 0.95 in December 2017; and • 0.68 in December 2016. • • Duration is an Outcome, not an Objective. Approach is: Purchasing Securities that mature on (or slightly before) a known • need – such as Payroll, Debt Service, Capital Projects, etc.; and Opportunistic Investing. • 8

The Economic Outlook Goldilocks Zone – Still There Factor Current Situation Low unemployment rate; 3.8% (up modestly from 3.7%) Increasing asset prices (stocks, real estate, etc.); S&P 500 (+15.9% - last 10 years) Low interest rates; Below historical norms Brisk but steady GDP growth; and > 2.5% past several years Low inflation Low (1.9%), below target Counterpunching: • Labor participation rate is stubbornly low – despite the large number of job opening; • Asset prices (such as US Equities) have been very volatile over the past 10-12 months; • Interest Rates: The “Pause” is now Policy; • GDP: The best positive among the factors; and • Average Hourly Earnings remains above 3.0%. 9

Future Rate Increases The Watchword is Pause: • Fed Funds: 2.25% - 2.50% Range; • +2.25% (9 Rate Increases since December 2015); • No Change in March; • Likely no increases for 2019; and • Forecast (Fed Dot Plot): • September 2018: Target Range was 3.25% - 3.5%; • December 2018: Target Range now 3.00% - 3.25%; • March 2019: Target Range now 2.5% - 2.75%; Pool Impact: • Longer Maturity Bonds (beyond 2 years) become more attractive as short-term securities no longer benefit from rolling over to the higher interest rates. 10

Yield Curve Inversions & Recessions Date of Start of Number of inversion recession months 9/17/1978 1/2/1980 15.5 9/12/1980 7/1/1981 10 8/11/1989 7/1/1990 11 2/2/2000 3/1/2001 13 2/1/2006 12/1/2007 22 11

The Dot Plot – March 2019 12

The Dot Plot – December 2018 13

Historical Maturity Distribution Comparison Maturity Distribution 50% 40% 30% 4/30/2018 20% 4/30/2019 10% 0% 0 TO 1 MONTHS 1 TO 3 MONTHS 3 TO 6 MONTHS 6 TO 12 MONTHS 12 TO 24 MONTHS 24 TO 36 MONTHS 36 TO 48 MONTHS 48 TO 60 MONTHS Effective Maturity Distribution 50% 40% 30% 4/30/2018 20% 4/30/2019 10% 0% 0 TO 1 MONTHS 1 TO 3 MONTHS 3 TO 6 MONTHS 6 TO 12 MONTHS 12 TO 24 MONTHS 24 TO 36 MONTHS 36 TO 48 MONTHS 48 TO 60 MONTHS 14 Source: SunGard APS2

Portfolio Comparison 13,500 $ Millions 12,750 12,000 5.7% 3.9% 11,250 0.4% Supranationals 10,500 8.7% Money Market Funds 6.6% 9,750 Medium Term Notes 3.1% 0.7% 9,000 2.5% 19.5% Commercial Paper 7.5% 3.4% 1.0% 8,250 Banker's Acceptances 2.6% 11.3% 3.2% 7,500 1.0% Negotiable CDs 22.1% 9.1% 11.2% 6,750 Public Time Deposits 6.7% 3.8% State/Local Agencies 6,000 1.9% 14.8% TLGP 5,250 2.0% Federal Agencies 4,500 51.0% U.S. Treasuries 3,750 50.5% 48.1% 3,000 55.0% 2,250 1,500 750 16.2% 9.4% 9.7% 6.6% - 4/30/2016 4/30/2017 4/30/2018 4/30/2019 15 Source: SunGard APS2

Portfolio Comparison STEP CPN 2% STEP CPN FLOAT 3% 4% FLOAT 23% FIXED FIXED 94% 74% April 30, 2018 April 30, 2019 16 Source: SunGard APS2

County Pooled Fund Statistics 2.8% Name of Fund Portfolio City and County of San Francisco 2.6% Size* ($ mns) 2.4% $31,348.0 Los Angeles County LAIF 22,059.4 2.2% Monthly Change In Earned Income Yield City and County of San Francisco 11,417.2 2.0% San Diego County 9,689.5 1.8% Fresno County Riverside County 6,913.3 Los Angeles County 1.6% Sacramento SD Sonoma Riverside 6,832.9 San Bernardino County SB Contra Costa LAIF 1.4% Orange County (ex. Schools) 4,488.3 Orange County 1.2% Sacramento County 3,884.6 Fresno County 3,857.4 1.0% Contra Costa County 2,804.7 0.8% Mar 2018 Mar 2019 Sonoma County 2,442.4 0.6% * as of March 2019 0 50 100 150 200 250 300 350 400 450 500 550 600 650 700 750 800 850 900 Weighted Average Maturity (in days) LGIP Index 30-Day Gross Yield April 2013 – April 2019 2.5% 2.0% 1.5% 1.0% San Francisco Earned Income Yield 0.5% LGIP Index 30-Day Gross Yield 0.0% Apr 13 Apr 14 Apr 15 Apr 16 Apr 17 Apr 18 Apr 19 17 Sources: Bloomberg, Sacramento County as of 05/07/2019

Pool Participants Breakdown As of April 2019 Pool Participant Fund Balance Percent of Fund General Fund/Special City Funds/Internal Services Funds $ 4,230,217,647 35.34% San Francisco International Airport 2,026,058,360 16.93% San Francisco Public Utilities Commission 1,317,212,677 11.00% Other agencies (incl. Transbay Joint Powers, Trial Courts) 971,862,800 8.12% San Francisco Municipal Transportation Authority 885,232,146 7.40% Facilities and Capital Projects Funds - General 810,846,370 6.77% San Francisco Unified School District 523,937,990 4.38% San Francisco General Hospital and Laguna Honda Hospital 477,353,520 3.99% OCII - Successor Agency – former SFRDA 336,385,402 2.81% Port of San Francisco 182,896,316 1.53% San Francisco Community College District 159,036,702 1.33% San Francisco County Transportation Authority 28,119,132 0.23% Pension and Retiree Health Care Trust Fund 19,921,875 0.17% Totals $ 11,969,080,938 100.0% 18 Sources: FSP Impromptu

Pool Participants Trends April 30, 2006 - April 30, 2019 12 Billions 10 8 6 4 2 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 General Fund/Special City Funds/Internal Services Funds San Francisco International Airport San Francisco Public Utilities Commission San Francisco Municipal Transportation Authority Facilities and Capital Projects Funds - General San Francisco Unified School District San Francisco General Hospital and Laguna Honda Hospital Other 19 Source: 2006 – 2019 Ending Balance Cognos and FSP Impromptu