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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. 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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. raco Am"ATENT# " TO REPORT# I L( -14 1 s m 1- o a m Z o p ' H Q; LLI Q C),M 0 a,a, t0,in O 0 W I F- . LL O >, Z 0 O m H 0 ng W 0 0 0 a 0 0i 0 z : 0 W I W F- U iii 0 t> 1W. ; T;, • Haj LL 0 ' Z 0 g;t 00 E m m:V E Z H co® 0 <0 el 00000 u> o O 00 6e c`') 0 N o CN ti 0000 O r o -CD' r Nr r C) 69 O N• O 0O d9 O o a z o 0 0CI Iii O — <0 ca co Wm , .+ a) �,. d � a. Z a .=I' „ • O " a a c` 6L > h To rn C c � 0E co o o c .c v d N O c 0 c c E a m m CL M W H Z o 0