1. City of Laguna Beach Investment Status Report With Guest Financial Expert Bill Blackwill, Managing Director Stifel Investment Services
Thursday May 18, 2017
4:30 to 5:30pm
Laguna Beach City Hall, Conference Room C
Agenda
Status of investments, March 31,
Strategies for investing in a rising rate environment
Options to consider
Laura Parisi, CPA, CCMT, CFIP
City Treasurer

2. Investment Priorities
Top priority is safety of taxpayer dollars achieved through internal controls, portfolio diversification, experienced brokers and custodial bank. Reliable monthly reporting, semi-annual outside auditor review, annual audit and this committee provided guidance.
Liquidity in a rising rate environment is critical. Fewer to no bond calls and investment of short-term funds beyond LAIF.
Yield increases as positions mature. Cash flow management is key.
City Treasurer’s Monthly Report
11/14/2018

3. Increased Volume and Diversification March 31, 2017 Investment Inventory totaled $95m vs. Prior Year $85.5m
City Treasurer’s Monthly Report
11/14/2018

4. Liquidity and Cash Flow
City Treasurer’s Monthly Report
11/14/2018

5. Short-term investment outside of LAIF
Current Year
Prior Year
Fair Value
Cost
Pct. of Total
Avg. Return
Short-term marketable securites
State - LAIF
1,437,985
1,439,171 1%
0.82%
9,759,683
Negotiable CDs
3,497,646
3,493,000 4%
1.12%
4,242,877
Federal agency securities
5,994,930
5,998,130 6%
0.92%
1,998,000
Medium-term corporate notes
4,191,346
4,203,485
1.10%
1,000,000
Municipal bonds
999,010
1.00% -
Supranational security
998,620
1,001,790
Total
17,119,537
17,135,576
18%
1.11%
17,000,559
State - LAIF Tax Exempt Bond Funds
2,112,678
2,114,421
City of Laguna Beach Investment Status
11/14/2018

6. City Treasurer’s Monthly Report
11/14/2018

7. Investment Income and Yield at March 31, 2017
City of Laguna Beach Investment Status
11/14/2018

8. Strategies for Investing in a Rising Rate Environment
The Case for Rising Rates
Economy is maintaining decent growth rate
Fed is trying to remove excess accommodation
Fed is trying to curtail rising Inflation
Trump is likely to pass stimulus measures
How much and when?
Near full employment

9. Why Rates might not rise much
Need to factor in balance sheet reduction
Higher rates will cool off real estate
Trump agenda won’t be easy

10. Investment Income and Yield at March 31, 2017
City of Laguna Beach Investment Status
11/14/2018

11. What makes sense with fixed income portfolios
Shorter Maturities
Step up Bonds
Be careful though
Just Thinking rates will rise is not enough
You must be right on how much and how quickly
City of Laguna Beach Investment Status
11/14/2018

12. Treasury Yield Curve
City of Laguna Beach Investment Status
11/14/2018

13. Step Up Example Potential new 5yr-1yr 1-Time Call / 1-Time Step
FHLMC 5/24 settlement
Coupon Schedule:
1.50% for 1yr beats 1yr bullets by 25bps 
2.50% 4yr back end is 70Bps higher than current 4yr bullets.
2.29% Irr if it extends to maturity outperforms 5yr bullets by 27bps
City of Laguna Beach Investment Status
11/14/2018

14. In Conclusion Be Careful We don’t know for sure what rates will do
Make sure your liquidity is sufficient
City of Laguna Beach Investment Status
11/14/2018

15. OPTIONS TO CONSIDER
Increase diversification by reducing the issuer holding percentage for corporate, municipal and supranational securities from 5% to 2%. The committee recommended that a 2% maximum per issuer be applied to Corporate Medium-Term Notes and Commercial Paper and to Supranational issuers of securities. The limitations will be reflected in the 2018 Investment Policy update.
Authorize a new security class – Asset Backed Securities. The additional investment option was not recommended at this time due to the complexity in accounting and only a small incremental increase in yield.
Purchase/lease investment software. An amount has been included in the budget for the City Treasurer beginning in 2017.
Investment in local securities (Laguna Beach) – We are working through glitches. There are no additional purchases planned and the glitches are being addressed as they arise.
Thank you for your assistance in reviewing the 2017 investments held by the City of Laguna Beach!
City of Laguna Beach Investment Status
11/14/2018