Report to:
General Committee Report
Date:
SUBJECT: 2009 Third 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 nine 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 |
Therefore, for the first three quarters, the average portfolio balance was assumed to be $210.2 million. 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,
with a final 25 basis point cut in early second quarter. For the past 5 months, the prime rate has
been 2.25%, with money market rates in the 0.25% range. During the first three quarters of 2009, the
Town’s investments had an average interest rate of 3.92%; 18 basis points lower
than budget. However, through active
bond trading, the Town has realized $935,000 of Capital Gains, thereby
increasing the actual rate of return to 4.51%; 41 basis points over the
budgeted rate. The difference in the
rate of return accounts for a favourable variance of $657,000.
Portfolio
Balance
The
budgeted average portfolio balance for the first three quarters of 2009 is $210.2
million. The actual average general fund
portfolio balance (including cash balances) for the first three quarters of 2009
was $212.2 million. The higher portfolio
balance accounts for a favourable variance of $61,000.
Portfolio Composition
All
investments made in the first three quarters of 2009 adhered to the Town of
The
At
Under 1 month 20.6%
1 month to 3 months 11.7%
3 months to 1 year 8.7%
Over 1 year 59.0%
Weighted average investment term 1,554.9 days
Weighted average days to maturity 1,294.1 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:
- 38 bonds were purchased with a face value of
$117.4 million
- 9 bonds were sold with a combined face
value of $19.0 million
- $935,000
of Capital Gains were realized
With the onset of falling short term interest rates, the strategy in early 2009 was to invest in longer term instruments as the yield curve was relatively steep. The Town purchased $82 million of bonds and similar long-term instruments in the first five months of 2009. During the third quarter, the spread between bank and government bonds narrowed from approx 150 bps (in early 2009) to approx 40 bps. The Town took advantage of this by selling bank bonds (mostly purchased in 2008) and reaping some substantial Capital Gains. The funds were mainly reinvested in longer-term government bonds.
Outlook
Money market rates are currently hovering around 0.20%-0.35% and are expected to remain at these levels for another year. There is very little reason to invest in the money market until this situation changes. The strategy is to continue to focus on bond market investments during periods of market weakness. There still obviously needs to be a focus on maintaining liquidity, therefore any short term money that is available to invest will be kept in the bank account (where it earns 0.50%).
Overall,
the Town and its investment portfolio are in very good shape to weather the
poor investing conditions as approximately 90% of the general portfolio is invested
in long term instruments. For 2010, the
budget is being increased by $1.0 million to $9.2 million.
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 Q3 Money Market Investments
Exhibit 5 – 2009 Q3 Bond Market Investments
Exhibit 6 –
2009 Q3 DCA Fund Investments