Report to: General Committee Report
Date:
SUBJECT: 2008 Investment Performance Review
PREPARED BY: Mark Visser, Manager of Financial Strategy & Investments x.4260
RECOMMENDATION:
1)
THAT
the report dated
2) And that Staff be authorized and directed to do all things necessary to give effect to this resolution.
EXECUTIVE SUMMARY:
Not Applicable
PURPOSE:
Pursuant to
Regulation 74/97 Section 8, the Municipal Act requires the Treasurer to
“prepare and provide to the Council, each year or more frequently as specified
by Council, an investment report”.
The
investment report shall contain,
(a) a
statement about the performance of the portfolio of investments of the
municipality during the period covered by the report;
(b) a
description of the estimated portion of the total investments of a municipality
that are invested in its own long-term and short-term securities to the total
investment of the municipality and a description of the change, if any, in that
estimated proportion since the previous year’s report;
(c) a
statement by the Treasurer as to whether or not, in her opinion, all
investments were made in accordance with the investment policies and goals
adopted by the municipality;
(d) a record of the date of each transaction
in or disposal of its own securities, including a statement of the purchase and
sale price of each security;
(e) such
other information that the Council may require or that, in the opinion of the
Treasurer, should be included.
BACKGROUND:
For the year ending
The 2008 budget assumes an average general fund portfolio balance of $168.67 million to be invested at an average rate of return of 4.20%. Both the actual average portfolio balance and the average rate of return were higher than budgeted levels. The details of these two factors will be discussed below.
Interest
Rate
The Prime
Rate was 6.00% at the beginning of 2008.
By April, it had dropped to 4.75% and remained at that level into the
fourth quarter. However, in Q4, the Bank
of Canada began a series of rate cuts that left the Prime Rate at 3.25% at year
end.
In 2008, the Town’s investments had an
average interest rate of 4.26%, 6 basis points higher than budget. Furthermore, through active bond trading, the
Town realized $244,000 of Capital Gains, thereby increasing the actual rate of
return to 4.38%; 18 points higher than the 4.20% budgeted rate. The difference in the rate of return accounts
for a favourable variance of $351,000.
Portfolio
Balance
The
budgeted average portfolio balance for 2008 was $168.67 million. The actual average general fund portfolio balance
(including cash balances) for 2008 was $189.93 million, resulting in $21.27
million more that was available for investment purposes. The higher portfolio balance accounts for a
favourable variance of $893,000
Portfolio Composition
All
investments made in 2008 adhered to the Town of
The
At
2008 2007
Under 1 month 14.1% (11.3%)
1 month to 3 months 29.4% (24.0%)
3 months to 1 year 16.8% (36.2%)
Over 1 year 39.6% (28.4%)
Weighted average investment term 1,214.6 days (848.3 days)
Weighted average days to maturity 849.6 days (459.2 days)
Since
Money Market
Performance
The Town
of
Bond Market Performance
2008 marks the
seventh year of the Town’s bond strategy.
The 2008 highlights of the program are as follows:
- 37
bonds were purchased with a face value of $105.7 million
- 8 bonds
were sold with a combined face value of $21.5 million
- $244,000
of Capital Gains were realized
At
The
strategy in 2008 was to take advantage of the large spread in yields between
While these bonds have higher average yields, they are
also far less liquid and therefore have lower market values. However since these bonds were purchased as
part of a buy-and-hold strategy, the unrealized loss is simply a function of
the market value at year end and not representative of the profitability to the
Town. See Appendix 5 for all 2008 bond
transactions.
Reserve Funds and Other Interest
The following table outlines the interest on investments for all major Town funds and reserves.
|
|
Average Balance |
Interest Earned |
Average Rate |
|
General Portfolio |
$189,936,000 |
$8,328,000 |
4.38% |
|
Reserve Funds/Varley Trust |
$122,791,000 |
$4,187,000 |
3.41% |
|
Powerstream Promissory Note |
$67,866,000 |
$3,787,000 |
5.58% |
|
MEC/District Energy Loans |
$16,800,000 |
$785,000 |
4.67% |
|
Development Charges Reserve |
$83,154,000 |
$2,947,000 |
3.54% |
OPTIONS/ DISCUSSION:
Outlook
In the first
quarter of 2009, interest rates have reached historic lows after further cuts
from the Bank of Canada. At the
beginning of February, 3-month BAs were approximately 1%, while 1-year
The Town is well positioned to weather the current environment. At the beginning of February 2009, the Town’s bond holdings were approximately 160 million, with almost 75% of that amount locked in until at least 2011 at attractive rates. Based on high level cash flow forecasts, the Town will not need to draw on any of these long term investments.
The strategy for 2009 is to continue to invest in longer term instruments as the yield pick up over money market investments is simply too great to ignore.
The Investment Income budget for 2009 is $8.2 million (an increase of $1.12 million from 2008). This is comprised of an estimated $200 million general portfolio balance invested at an average rate of 4.1%.
FINANCIAL CONSIDERATIONS AND TEMPLATE: (external link)
Not applicable
HUMAN RESOURCES CONSIDERATIONS
Not applicable
ALIGNMENT WITH STRATEGIC PRIORITIES:
Not Applicable
BUSINESS UNITS CONSULTED AND AFFECTED:
Not applicable
RECOMMENDED
BY: ________________________ ________________________
Barb Cribbett, Treasurer Andy Taylor, Commissioner
of Corporate Services
ATTACHMENTS:
Exhibit 1 – Investment Portfolio by Issuer
Exhibit 2 – Investment Portfolio by Instrument
Exhibit 3 – Investment Terms
Exhibit 4 – 2008 Money Market Investments
Exhibit 5 – 2008 Bond Market Investments
Exhibit 6 –
2008 DCA Fund Investments