Report to:
General Committee Report
Date:
SUBJECT: 2009 First Quarter Investment Performance Review
PREPARED BY: Mark Visser, Manager of Financial Strategy & Investments
RECOMMENDATION:
THAT the
report dated
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 three months ending
The 2009 investment income budget is $8.2 million which assumes an average portfolio balance of $200 million and an average interest rate of 4.1%. The monthly budget allocation has been modified to reflect the changing portfolio balances throughout the year.
|
Period |
Avg. Balance |
Avg. Rate |
Budget |
|
Q1 |
$170.00m |
4.10% |
$1,718,630 |
|
Q2 |
$230.00m |
4.10% |
$2,351,041 |
|
Q3 |
$230.00m |
4.10% |
$2,376,877 |
|
Q4 |
$169.67m |
4.10% |
$1,753,452 |
|
2009
Total |
$200.00m |
4.10% |
$8,200,000 |
The first quarter typically has the lowest average portfolio balances as the Town makes payment to the Region and School Board on December 15th and tax payments don’t start flowing in again until late February. As a result, the Q1 2009 budget assumes an average general fund portfolio balance of $170 million to be invested at an average rate of return of 4.10%. The actual average portfolio balance and the average rate of return were above budgeted levels. The details of these two factors will be discussed below.
Interest
Rate
In the first
quarter 0f 2009, the Bank of Canada cut interest rates by 100 basis
points. At March 31, the Prime rate was
2.50% with money market rates in the 0.5% range. During the first quarter of 2009, the Town’s
investments had an average interest rate of 4.25%; 15 basis points higher than
budget. However, through active bond
trading, the Town realized $252,000 of Capital Gains, thereby increasing the
actual rate of return to 4.80%; 70 basis points over the budgeted rate. The difference in the rate of return accounts
for a favourable variance of $320,000.
Portfolio
Balance
The
budgeted average portfolio balance for Q1 2009 is $170.0 million. The actual average general fund portfolio
balance (including cash balances) for the first quarter of 2009 was $184.5
million. The higher portfolio balance
accounts for a favourable variance of $145,000.
Portfolio Composition
All
investments made in the first quarter of 2009 adhered to the Town of Markham
investment policy At March 31, 2009, 42% of the Town’s portfolio was comprised
of government issued securities. The
remaining 58% of the portfolio was made up of instruments issued by Schedule 1 Banks.
All of these levels are within the
targets established in the Town’s Investment Policy (Exhibit 1).
The
At
Under 1 month 33.5%
1 month to 3 months 9.2%
3 months to 1 year 12.7%
Over 1 year 44.5%
Weighted average investment term 1,209.6 days
Weighted average days to maturity 994.4 days
Money Market
Performance
The Town
of
Bond Market Performance
2009 marks the
seventh year of the bond trading strategy.
The 2009 YTD highlights of the program are as follows:
- 17 bonds were purchased with a face value of
$53.5 million
- 2 bonds
were sold with a combined face value of $4.0 million
- $252,000
of Capital Gains were realized
With the onset of falling short term interest rates, the strategy in the first quarter of 2009 was invest in longer term instruments as the yield curve was relatively steep. The greatest value in the first quarter was bank bonds. With the current economic situation, the spread between government and bank bond yields was the largest it has been since the Town’s bond trading strategy began. Even in early Q2, this spread has reduced substantially, but the town did take advantage by buying $24 million of long term bank product in the first quarter.
Outlook
The Bank
of Canada cut interest rates by another 25 basis points on April 21, reducing
the overnight lending rate to 0.25%. The
Bank of Canada has stated they will leave it at this level until mid-2010. Fortunately, the Town of
OPTIONS/ DISCUSSION:
Not Applicable
FINANCIAL CONSIDERATIONS AND TEMPLATE: (external link)
Not Applicable
ENVIRONMENTAL CONSIDERATIONS:
Not Applicable
ACCESSIBILITY CONSIDERATIONS:
Not Applicable
ENGAGE 21ST CONSIDERATIONS:
Not Applicable
BUSINESS UNITS CONSULTED AND AFFECTED:
Not Applicable
RECOMMENDED
BY: ________________________ ________________________
Barb Cribbett, Treasurer Andy Taylor, Commissioner,
Corporate Services
ATTACHMENTS:
Exhibit 1 – Investment Portfolio by Issuer
Exhibit 2 – Investment Portfolio by Instrument
Exhibit 3 – Investment Terms
Exhibit 4 – 2009 Q1 Money Market Investments
Exhibit 5 – 2009 Q1 Bond Market Investments
Exhibit 6 –
2009 Q1 DCA Fund Investments