HomeMy WebLinkAboutFIN 09-16 C` 00 A Report to
Executive Committee
PI IBMIMOU
Report Number: FIN 09-16
• Date: May 9, 2016
From: Paul Bigioni
Director, Corporate Services & City Solicitor
Subject: Investment Portfolio Activity for the Year Ended December 31, 2015
Ontario Regulation 438/97 under the Municipal Act, 2001
Recommendation:
It is recommended that report FIN 09-16 of the Director, Corporate Services & City
Solicitor regarding Investment Portfolio Activity for the Year Ended December 31, 2015
be received for information.
Executive Summary: The following report and attachments represent a summary
of the investment activity and year end balance in the portfolio. Investment activity for
the year 2015 totaled approximately $284.8 million with a year end balance in the
portfolio of approximately $112.2 million. Current Fund investments are limited to one
year or less and Reserve Funds to 10 years or less under the Council approved policy.
As discussed below, overall returns on the City's portfolio remain low due to continued
low interest rates during 2015, however, the returns still compare favourably to market
benchmarks. Over the last decade, the City's returns have generally exceeded
comparative market benchmarks.
Financial Implications: Total investment income, including bank account interest for
2015 was $1.47 million (2014 - $1.45M) of which $405,000 (2014 - $530,000) was for
Current (Operating) Funds. The balance of the income was allocated to the various
reserve funds.
Discussion: The City's investment portfolio is comprised of two main components:
(i) Reserve Funds; and
(ii) Balances available in the Current Fund, when not required to meet current
operating expenditures. This latter balance can vary greatly depending upon
many factors including the timing of the receipt of property taxes and levy
payments to the School Boards and the Region.
FIN 09-16 May 9, 2016
Subject: Investment Portfolio Activity for the Year Ended December 31, 2015 Page 2
Ontario Regulation 438/97 under the Municipal Act, 2001
Investments are undertaken as one consolidated pool of funds and interest earned is
credited back to the appropriate funds.
The Treasurer of the City of Pickering is required under Provincial Regulation 438/97 to
report certain information and opinions to Council. The schedules to this report are
included as part of that Regulation's information requirements. The portfolio balance at
December 31, 2015 of$112.2 million (2014 - $102.7M) is higher than the prior year.
Supplementary tax due dates in November and December and a net increase in the
obligatory Reserve Fund balances contributed to the increase in the investment portfolio
balance over 2014. In addition, the forecasted cash requirements at year end allowed
the City to transfer some funds from the general bank account to some short term
investments in attempts to earn a slightly higher rate of return. This led to a short-term
investment balance at the end of 2015 of$58.8 million (2014 - $49.5M) and a long-term
investment balance of$49.0 million (2014 - $49.2M).
The portion of the investment portfolio invested with TD Wealth primarily consists of
Guaranteed Investment Certificates (GIC). Although interest rates are higher than the
interest rates for Banker's Acceptances, GIC's are less liquid than these other
investment instruments. During the course of 2015, the City also entered into some
long-term holdings being bank bonds and deposit notes. The net performance on TD
Wealth's portion of the portfolio for 2015 was 1.18% (2014 — 1.45%).
The return on the portfolio maintained with Nesbitt Burns also decreased slightly in 2015
with a weighted yearly rate of return of 1.36% (2014 — 1.51%) on the combined short-
term and long-term investments.
The slight decline for both was primarily a result of the unexpected interest rate drop in
early January 2015 of 0.5% which did not recover through the balance of the year.
Interest rates this low have not been seen in years and are not expected to increase
anytime soon. Hence the request for Council approval in January to enter the One
Investment Program — Corporate Bond Portfolio which allows municipalities to take
advantage of higher risk investments thus leading to increased rates of return.
Investment parameters are narrow due to the Municipal Act and Regulations limiting the
selection of qualified investments for municipal entities. Furthermore, staffs approach
tends to be conservative, given that they are investing public money. Notwithstanding
these restrictions, the annual returns from both Nesbitt Burns and TD Wealth
outperformed the annual returns for the CIBC World Markets 91-Day T-Bill Index
(0.64%) and the Morningstar Canadian Money Market Mutual Fund Index (0.32%).
These indices are deemed to be comparative benchmarks for reviewing the portfolio's
performance and are considered the standard for analysis of investment funds in the
industry.
The average return on interfund investments (internal loans) was 2.51% (2014 — 2.7%).
FIN 09-16 May 9, 2016
Subject: Investment Portfolio Activity for the Year Ended December, 31, 2015 Page 3
Ontario Regulation 438/97 under the Municipal Act, 2001
At year end 2015, the total portfolio of approximately $112.2 million, consisted of
approximately $49.0 million or 43.7% in external long-term investments and
approximately $4.5 million or 4.0% in Interfund Investments (Internal Loans). The
balance of approximately $58.8 million is short-term investments due within the year.
All investments were made in accordance with the Investment Policy approved by
Council.
Attachments:
1 Investment Activities for 2015
2. Outstanding Investments as at December 31, 2015
3' Portfolio Performance - Correspondence from TD Wealth
4`. Portfolio Performance Review - Correspondence from BMO Nesbitt Burns
Prepared By: Approved/Endorsed By:
Kristine Senior Stan Karwowski
Manager, Accounting Services Div' ,,n Head, Finance & Treasurer
Paul it'i• ii
Director, C•,rporate Services & City Solicitor
Recommended for the consideration
of Pickering City Council
•
o0/6
U
Tony Prevedel, P.Eng.
Chief Administrative Officer
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Portfolio Performance Review
For comparison purposes we have included the following benchmarks that provide the closest representative
return data.There are three separate issues that should be taken into consideration when comparing the
representative rates of return. First,the guidelines set out in the Municipal Finance Statutes governing your
investment policy prohibit you from owning any fixed income investments that are not either government
guaranteed or issued by a major Canadian Chartered Bank. Canadian money market funds used to construct the
Morningstar Canadian Money Market Index contain a high percentage of higher yielding money market products
including investments such as asset backed securities,some of which your investment policy prohibits you from
holding.Secondly,your portfolio has a smaller percentage of qualified fixed income investments that are slightly
longer than the 1 year maturity period that typically defines money market investments.
Finally, in a lower interest rate environment,the portfolio may hold "Step-up Bond" investments which are
laddered coupon bonds that have an annual maturity, but are both extendible, and redeemable at the issuer's
option on the annual anniversary date.As such these investments can be classified as short term or longer term
using the longest final maturity date as the determinant.
Annual Account Return Benchmark Comparisons*
• iar i 3 i3;i)s ik (OR ro 7]i)
rthi ae 1 •• a4.Z'. "" - !o J-131lEi 461-47 a' .Z�lr/��':���%r�y�}!tZ?WhiketiI
2015 1.36% 0.64% 0..32%.
2014 1.51% 0.91% 0.57%
2013 1.23% 0.97% 0.56%
2012 1.37% 0.93% 0.59%
2011 2.49% 0.96% 0.63%
2010 1.25% 0.37% 0.28%
2009 1.54% 0.52% 0.50%
2008 4.92% 3.13% 2.81%
2007 4.27% 4.29% 3.80%
2006 3.81% m 3.84% 3.21%
2005 2.51% 2.48% 1.87%
2004 4.39% 2.27% 1.51%
* Return Comparisons are derived from separate third party sources which are believed to be accurate but are
not guaranteed by BMO Nesbitt Burns Inc.
** Comparative benchmarks have been selected that are most reasonable to use for comparison purposes but
are not 100%specific to the investment guidelines followed by the representative account in question.
***The Morningstar Fund Indices are the best available representation of the performance of aggregate dollars
actually invested, currently and historically, in Canadian money market mutual funds and/or segregated funds.
The indices measure the dollar weighted return of assets in Canadian funds.The return calculation does not
suffer from survivorship bias, as the impact of returns with funds that are no longer active are retained. Funds
that report returns before fees are excluded from Morningstar Fund Indices. Returns are rounded to 2 decimal
places.
In conclusion once again, I would like to highlight the following points;
1j a) Our investment parameters are much narrower than money market funds. Government legislation
governing Municipal Investments limits the selection of qualified investments.
b) Within the portfolio, we have successfully blended a small percentage of investments with a time horizon
exceeding 18 months.
c) The account maintains an active pattern of cash in-flows and out-flows as a result of the nature of the
cash-flow requirements of an entity like the City of Pickering. As a result, it can be difficult to execute a
specific investment plan that is not highly liquid and flexible.
d) While the current and anticipated interest rate environment is extremely important in shaping the
composition of the account portfolio,'we endeavour to always attempt to avoid making decisions that
could be construed as market timing any changes in relation to Bank of Canada rate decisions.
Sincerely,
,404(1€1.0 C,-edded
Andrew R. Geddes PFP,CIM,FCSI
Vice President, Portfolio Manager•
BMO Wealth Management, BMO Nesbitt Burns Inc.
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BMO Nesbitt Burns Inc.("BMO NBI") provides this commentary to clients for informational purposes only.The information
contained herein is based on sources that we believe to be reliable, but is not guaranteed by us,may be incomplete or may
change without notice. The comments included in this document are general in nature,and professional advice regarding
an individual's particular position should be obtained. "BMO(M-bar roundel symbol)"is a registered trade-mark of Bank of
Montreal,used under licence. "Nesbitt Burns"is a registered trade-mark of BMO Nesbitt Burns Inc. BMO Nesbitt Burns .
Inc.is a wholly-owned subsidiary of Bank of Montreal. Member-Canadian Investor Protection Fund.
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