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

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

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Office of the Treasurer & Tax Collector City and County of San Francisco Jos Cisneros, Treasurer Tajel Shah, Chief Assistant Treasurer Robert L. Shaw, CFA, Chief Investment Officer Treasury Oversight Committee May 17, 2019 City Hall -

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Treasury Oversight Committee

May 17, 2019

Office of the Treasurer & Tax Collector City and County of San Francisco

Tajel Shah, Chief Assistant Treasurer Robert L. Shaw, CFA, Chief Investment Officer

José Cisneros, Treasurer

City Hall - Room 140 ● 1 Dr. Carlton B. Goodlett Place ● San Francisco, CA 94102-4638 Telephone: 415-554-5210 ● Facsimile: 415-554-5660

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Table of Contents

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

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SLIDE 3

Source: Bloomberg

Key Economic Data

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0% 2% 4% 6% 8% 10% 12% 62% 63% 64% 65% 66% 3/09 3/11 3/13 3/15 3/17 3/19

Wage Growth & Unemployment Rate Labor Participation Rate

Employment

Wage Growth Labor Participation Rate Unemployment Rate

47 49 51 53 55 57 59 61

  • 5%
  • 4%
  • 3%
  • 2%
  • 1%

0% 1% 2% 3% 4% 5% 3/15 3/16 3/17 3/18 3/19

Gross Domestic Product

GDP Year-over-Year Change ISM Manufacturing PMI ISM Non-Manufacturing PMI

  • 1.5%
  • 0.5%

0.5% 1.5% 2.5% 3.5% 4.5% 3/15 3/16 3/17 3/18 3/19

Producer Price Index vs Consumer Price Index

Core CPI Core PPI CPI PPI

0K 1,000K 2,000K 3,000K 4,000K 5,000K 6,000K 7,000K 8,000K 9,000K 0K 100K 200K 300K 400K 500K 600K 700K

3/09 3/11 3/13 3/15 3/17 3/19

JOLTS & Jobless Claims

US Initial Jobless Claims US Job Openings

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SLIDE 4

0K 100K 200K 300K 400K 500K 600K 700K 800K

1 2 3 4 5 6 3/09 3/10 3/11 3/12 3/13 3/14 3/15 3/16 3/17 3/18 3/19 Millions

Housing

Existing Homes Sales New Home Sales

Source: Bloomberg

Key Economic Data

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100 150 200 250 300 2/09 2/10 2/11 2/12 2/13 2/14 2/15 2/16 2/17 2/18 2/19

S&P/Case-Shiller Home Price Indices

20 Metro Composite San Francisco Area

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SLIDE 5

Yield Curve Changes

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2.0% 2.1% 2.2% 2.3% 2.4% 2.5% 2.6% 2.7% 2.8% 2.9% 3.0%

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

UST Yields 1/25/19 4/30/19 Change 3M 2.37 2.41 0.04 6M 2.50 2.44

  • 0.06

1Y 2.58 2.37

  • 0.21

2Y 2.61 2.27

  • 0.34

3Y 2.59 2.24

  • 0.35

5Y 2.60 2.28

  • 0.32

Source: Bloomberg

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SLIDE 6

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.

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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.

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SLIDE 8

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.

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The Economic Outlook Goldilocks Zone – Still There 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%.

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

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SLIDE 10

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.

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Yield Curve Inversions & Recessions

Date of inversion Start of recession Number of 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

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The Dot Plot – March 2019

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The Dot Plot – December 2018

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Historical Maturity Distribution Comparison

14 0% 10% 20% 30% 40% 50% 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

Maturity Distribution

4/30/2018 4/30/2019

Source: SunGard APS2

0% 10% 20% 30% 40% 50% 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

4/30/2018 4/30/2019

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SLIDE 15

6.6% 16.2% 9.7% 9.4% 55.0% 50.5% 48.1% 51.0% 2.0% 3.8% 1.9% 1.0% 14.8% 11.2% 22.1% 19.5% 6.7% 11.3% 7.5% 8.7% 9.1% 1.0% 0.7% 0.4% 3.2% 3.4% 3.1% 3.9% 2.6% 2.5% 6.6% 5.7%

  • 750

1,500 2,250 3,000 3,750 4,500 5,250 6,000 6,750 7,500 8,250 9,000 9,750 10,500 11,250 12,000 12,750 13,500

4/30/2016 4/30/2017 4/30/2018 4/30/2019

$ Millions

Supranationals Money Market Funds Medium Term Notes Commercial Paper Banker's Acceptances Negotiable CDs Public Time Deposits State/Local Agencies TLGP Federal Agencies U.S. Treasuries

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Portfolio Comparison

Source: SunGard APS2

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SLIDE 16

Portfolio Comparison

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FIXED 74% FLOAT 23% STEP CPN 3% FIXED 94% FLOAT 4% STEP CPN 2%

Source: SunGard APS2

April 30, 2018 April 30, 2019

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SLIDE 17

Name of Fund

Portfolio Size* ($ mns)

Los Angeles County $31,348.0 LAIF 22,059.4 City and County of San Francisco 11,417.2 San Diego County 9,689.5 Riverside County 6,913.3 San Bernardino County 6,832.9 Orange County (ex. Schools) 4,488.3 Sacramento County 3,884.6 Fresno County 3,857.4 Contra Costa County 2,804.7 Sonoma County 2,442.4

LGIP Index 30-Day Gross Yield April 2013 – April 2019

County Pooled Fund Statistics

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Sources: Bloomberg, Sacramento County as of 05/07/2019

* as of March 2019

0.0% 0.5% 1.0% 1.5% 2.0% 2.5% Apr 13 Apr 14 Apr 15 Apr 16 Apr 17 Apr 18 Apr 19 San Francisco Earned Income Yield LGIP Index 30-Day Gross Yield

City and County of San Francisco Sacramento Fresno County LAIF Los Angeles County Orange County Riverside SB SD Sonoma Contra Costa 0.6% 0.8% 1.0% 1.2% 1.4% 1.6% 1.8% 2.0% 2.2% 2.4% 2.6% 2.8% 50 100 150 200 250 300 350 400 450 500 550 600 650 700 750 800 850 900 Monthly Change In Earned Income Yield

Weighted Average Maturity (in days)

Mar 2018 Mar 2019

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SLIDE 18

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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%

Sources: FSP Impromptu

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SLIDE 19

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Source: 2006 – 2019 Ending Balance Cognos and FSP Impromptu

April 30, 2006 - April 30, 2019

Pool Participants Trends

2 4 6 8 10 12 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Billions

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