Report to:
General Committee Report
Date:
SUBJECT: 2007 First Quarter Investment Performance Review
PREPARED BY: Mark Visser, Manager of Strategy, Innovation &
Investments
RECOMMENDATION:
THAT the
report dated
EXECUTIVE SUMMARY:
Not applicable
1. Purpose 2. Background 3. Discussion 4. Financial
5. Others (Environmental, Accessibility, Engage 21st, Affected Units) 6. Attachment(s)
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 2007 investment income budget is $7.084 million which assumes an average portfolio balance of $168.67 million and an average interest rate of 4.2%. The monthly budget allocation has been modified to reflect the changing portfolio balances throughout the year.
|
Period |
Avg. Balance |
Avg. Rate |
Budget |
|
Q1 |
$130.00m |
4.20% |
$1,346301 |
|
Q2 |
$189.67m |
4.20% |
$1,986,081 |
|
Q3 |
$185.72m |
4.20% |
$1,966,061 |
|
Q4 |
$168.67m |
4.20% |
$1,785,557 |
|
2007
Total |
$168.67m |
4.20% |
$7,084,000 |
The first quarter always has the lowest average portfolio balances as the Town makes payment to the Region and School Board on December 15th and doesn’t start collecting tax payments until late February. As a result, the Q1 2007 budget assumes an average general fund portfolio balance of $130 million to be invested at an average rate of return of 4.20%. 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
Despite constant
forecasts that the Bank of Canada was going to decrease interest rates at the
end of 2006 and in the first quarter of 2007, the Bank Rate has remained
unchanged at 4.50%. During the first
quarter of 2007, the Town’s investments had an average interest rate of 4.15%;
5 basis points lower than budget. However,
through active bond trading, the Town realized $73,000 of Capital Gains,
thereby increasing the actual rate of return to 4.37%; 17 basis points over the
budgeted rate. The difference in the rate
of return accounts for a favourable variance of $59,000.
Portfolio
Balance
The
budgeted average portfolio balance for Q1 2007 is $130.0 million. The actual average general fund portfolio balance
(including cash balances) for the first quarter of 2007 was $140.5 million;
$10.5 million higher than forecasted.
The higher portfolio balance accounts for a favourable variance of $109,000.
Portfolio Composition
All
investments made in the first quarter of 2007 adhered to the Town of
The
At
Under 1 month 47.8%
1 month to 3 months 18.8%
3 months to 1 year 14.7%
Over 1 year 18.7%
Weighted average investment term 520.1 days
Weighted average days to maturity 296.8 days
Money Market
Performance
The Town
of
Bond Market Performance
2007 marks the sixth
year of the bond trading strategy. The
2007 YTD highlights of the program are as follows:
- 6 bonds
were purchased with a face value of $7.5 million
- 2 bonds
were sold with a combined face value of $2.3 million
- $76,000
of Capital Gains were realized
The strategy in the first quarter of 2007 was much the same as the previous 3 quarters. As long bond yields are continuing to have similar yields to short term bonds, the strategy during this period has been to maximize return on investment by capitalizing on higher rates of return with structured bonds (i.e. step up bonds that can be called by the issuer at certain dates but have much higher yields to reflect this feature). Any non-structured bond purchases have been kept in the 3-6 year time frame.
Outlook
The money
market and bond market rates have been fairly stable for the last 6
months. Given the current economic
conditions and relative silence from the Bank of Canada, it is not expected
that rates will change over the next two quarters. As a result, it is expected that the Town’s
income earned on investments will be on budget for the year.
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 – 2007 Q1 Money Market Investments
Exhibit 5 – 2007 Q1 Bond Market Investments
Exhibit 6 –
2007 Q1 DCA Fund Investments