HomeMy WebLinkAboutFIN 14-17 Ciy Report to
P 1 C K E R 1 N G Executive Committee
Report Number: FIN 14-17
Date: June 5, 2017
From: Stan Karwowski
Director, Finance & Treasurer
Subject: Investment Portfolio Activity for the Year Ended December 31, 2016
Ontario Regulation 438/97 under the Municipal Act, 2001
Recommendation:
It is recommended that report FIN 14-17 of the Director, Finance & Treasurer regarding
Investment Portfolio Activity for the Year Ended December 31, 2016 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 2016 totaled approximately $295.3 million with a year end balance in the
portfolio of approximately $112.4 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 2016, 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
2016 was $1.42 million (2015 - $1.47M) of which $421,000 (2015 - $405,000) 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 14-17 June 5, 2017
Subject: Investment Portfolio Activity for the Year Ended December 31, 2016 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, 2016 of$112.4 million (2015 - $112.2M) is comparable to the prior year.
The return on the portfolio maintained with Nesbitt Burns decreased in 2016 with a
weighted yearly rate of return of 0.84% (2015 — 1.36%) on the combined short-term and
long-term investments. This was a result of the interest rates remaining at all time lows
throughout 2016.
The net performance on TD Wealth's portion of the portfolio for 2016 was 1.27%
(2015 — 1.18%). This slight increase is attributed to the types of investments being
held. The portion of the portfolio invested with TD Wealth primarily consists of one year
Guaranteed Investment Certificates (GIC). Interest rates are higher than the interest
rates for Banker's Acceptances and the one year term protects the City from
fluctuations in interest rates, but GIC's are less liquid than these other investment
instruments.
The City has earmarked some funds to be invested over the summer in the One
Investment Program — Corporate Bond Portfolio which will allow the City to take
advantage of higher risk investments thus leading to increased rates of return while the
rates remain at all time lows.
Investment parameters are narrow due to the Municipal Act and Regulations limiting the
selection of qualified investments for municipal entities. Furthermore, staff's 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
(0.50%) 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 2.38% (2015 —
2.51%).
At year end 2016, the total portfolio of approximately $112.4 million, consisted of
approximately $48.2 million or 42.9% in external long-term investments and
approximately $3.5 million or 3.0% in Interfund Investments (Internal Loans). The
balance of approximately $60.7 million is short-term investments due within the year.
All investments were made in accordance with the Investment Policy approved by
Council.
FIN 14-17 June 5, 2017
Subject: Investment Portfolio Activity for the Year Ended December 31, 2016 Page 3
Ontario Regulation 438/97 under the Municipal Act, 2001
Attachments:
1. Investment Activities for 2016
2. Outstanding Investments as at December 31, 2016
3. Portfolio Performance Review - Correspondence from BMO Nesbitt Burns
4. Portfolio Performance - Correspondence from TD Wealth
Prepared By: Approved/Endorsed By:
Kristine Senior Stan Karwowski
Manager, Accounting Services Director, Finance & Treasurer
Recommended for the consideration
of Pickering Ci Council
Tony Prevedel, P.Eng.
Chief Administrative Officer
ATTACHMENT# C TO REPORT#f2k1 04-, -/
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ATTACHMENT#A TO REPORT#I,&/ If-17
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*
Morningstar Canadian
Calendar Year Your BMO Nesbitt Burns CIBC World Markets Money Market Mutual
Account Return** 91 Day T-Bill Index** Fund Index***
2016 0.84% 0.50% 0.32%
2015 1.36% 0.64% 0.37%
2014 1.51% 0.91% 0.59%
2013 1.23% 0.97% 0.56%
2012 1.37% 0.93% 0.58%
2011 2.49% 0.96% 0.64%
2010 1.25% 0.37%
0.31%
2009 1.54% 0.52% 0.53%
2008 4.92% 3.13% 2.84%
2007 4.27% 4.29% 3.82%
2006 3.81% 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 I would once again like to highlight the following points;
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 always endeavour to attempt to avoid making decisions that
could be construed as market timing any changes in relation to Bank of Canada rate decisions.
Sincerely,
Atie ue lie"
Andrew R.Geddes PFP,CIM,FCSI
Vice President, Portfolio Manager
BMO Wealth Management, BMO Nesbitt Burns Inc.
A 1,1
•
CIIMc CHARTERED
INVESTMENT MANAGER PFP" PERSONAL
FCS _ FINANCIAL PLANNER
FELLOW OF csi •n� 7 N
M1 M1t
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.
General Disclosure
"BMO Capital Markets"is a trade name used by the BMO Financial Group for the wholesale banking businesses of Bank of
Montreal and its subsidiaries BMO Nesbitt Burns Inc.,BMO Capital Markets Limited in the U.K.and BMO Capital Markets
Corp.in the U.S.BMO Nesbitt Burns Inc.,BMO Capital Markets Limited and BMO Capital Markets Corp are affiliates. Bank of
Montreal or its subsidiaries("BMO Financial Group")has lending arrangements with,or provide other remunerated services
to,many issuers covered by BMO Capital Markets.The opinions,estimates and projections contained in this report are
those of BMO Capital Markets as of the date of this report and are subject to change without notice.BMO Capital Markets
endeavours to ensure that the contents have been compiled or derived from sources that we believe are reliable and
contain information and opinions that are accurate and complete.However,BMO Capital Markets makes no representation
or warranty,express or implied,in respect thereof,takes no responsibility for any errors and omissions contained herein
and accepts no liability whatsoever for any loss arising from any use of,or reliance on,this report or its contents.
Information may be available to BMO Capital Markets or its affiliates that is not reflected in this report.The information in
this report is not intended to be used as the primary basis of investment decisions,and because of individual client
objectives,should not be construed as advice designed to meet the particular investment needs of any investor.
This material is for information purposes only and is not an offer to sell or the solicitation of an offer to buy any security.
BMO Capital Markets or its affiliates will buy from or sell to customers the securities of issuers mentioned in this report on a
principal basis.BMO Capital Markets or its affiliates,officers,directors or employees have a long or short position in many
of the securities discussed herein,related securities or in options,futures or other derivative instruments based thereon.
The reader should assume that BMO Capital Markets or its affiliates may have a conflict of interest and should not rely
solely on this report in evaluating whether or not to buy or sell securities of issuers discussed herein.
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