treasury investment council · florida economy •steady recovery continues. •september...

Treasury Investment Council April 2018 - September 2018

Overview

Meeting Date: November 15, 2018

1

Florida Economy

2

Florida Economy

• Steady recovery continues.

• September unemployment was 3.5% as compared to the US average of 3.7%.

• Florida near term population growth projection is 1.7% annually between 2017 and 2021.

• Florida housing continues to improve:

• Existing home sales for 2018 through Q3 is 2.8% higher than 2017.

• Florida’s median home price in December was $255,000, 7.6% higher than 2017.

3

State Net Receipts

$2,554

-$52

$1,620

$753

$1,368

$424

$751

$77$166

-$193

$1,654

($500)

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 Sep-18

Mill

ion

s

For the prior 6-month periods

4

State Receipts and Disbursements

Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Sep-16 Mar-17 Sep-17 Mar-18 Sep-18

Receipts $44,742 $42,970 $45,821 $45,779 $47,200 $46,855 $48,996 $47,997 $50,326 $49,742 $53,393

Disbursements $42,188 $43,022 $44,201 $45,026 $45,832 $46,432 $48,245 $47,919 $50,160 $49,935 $51,739

$0

$10,000

$20,000

$30,000

$40,000

$50,000

$60,000

Mill

ion

s

For the prior 6-month periods

5

Treasury Overview

6

Investment Pool Balance

7

$12,000M

$14,000M

$16,000M

$18,000M

$20,000M

$22,000M

$24,000M

$26,000M

De

c-0

7

Mar

-08

Jun

-08

Sep

-08

De

c-0

8

Mar

-09

Jun

-09

Sep

-09

De

c-0

9

Mar

-10

Jun

-10

Sep

-10

De

c-1

0

Mar

-11

Jun

-11

Sep

-11

De

c-1

1

Mar

-12

Jun

-12

Sep

-12

De

c-1

2

Mar

-13

Jun

-13

Sep

-13

De

c-1

3

Mar

-14

Jun

-14

Sep

-14

De

c-1

4

Mar

-15

Jun

-15

Sep

-15

De

c-1

5

Mar

-16

Jun

-16

Sep

-16

De

c-1

6

Mar

-17

Jun

-17

Sep

-17

De

c-1

7

Mar

-18

Jun

-18

Sep

-18

Average of the previous twelve end-of-month pool balances

State Operating Accounts

8

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

$0M

$5,000M

$10,000M

$15,000M

$20,000M

$25,000MD

ec-

10

Mar

-11

Jun

-11

Sep

-11

De

c-1

1

Mar

-12

Jun

-12

Sep

-12

De

c-1

2

Mar

-13

Jun

-13

Sep

-13

De

c-1

3

Mar

-14

Jun

-14

Sep

-14

De

c-1

4

Mar

-15

Jun

-15

Sep

-15

De

c-1

5

Mar

-16

Jun

-16

Sep

-16

De

c-1

6

Mar

-17

Jun

-17

Sep

-17

De

c-1

7

Mar

-18

Jun

-18

Sep

-18

State Operating Accounts

Trust Funds $ General Revenue $ SPIA State Agencies Operating $ Total Operating State %

Non-State Operating Accounts*

* Subject to Floor Provision

9

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

$0M

$1,000M

$2,000M

$3,000M

$4,000M

$5,000M

$6,000M

De

c-1

0

Mar

-11

Jun

-11

Sep

-11

De

c-1

1

Mar

-12

Jun

-12

Sep

-12

De

c-1

2

Mar

-13

Jun

-13

Sep

-13

De

c-1

3

Mar

-14

Jun

-14

Sep

-14

De

c-1

4

Mar

-15

Jun

-15

Sep

-15

De

c-1

5

Mar

-16

Jun

-16

Sep

-16

De

c-1

6

Mar

-17

Jun

-17

Sep

-17

De

c-1

7

Mar

-18

Jun

-18

Sep

-18

SPIA Non-State Operating $ SPIA Non-State Operating %

Bond Accounts

10

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

$0M

$500M

$1,000M

$1,500M

$2,000M

$2,500M

$3,000M

$3,500M

$4,000M

De

c-1

0

Mar

-11

Jun

-11

Sep

-11

De

c-1

1

Mar

-12

Jun

-12

Sep

-12

De

c-1

2

Mar

-13

Jun

-13

Sep

-13

De

c-1

3

Mar

-14

Jun

-14

Sep

-14

De

c-1

4

Mar

-15

Jun

-15

Sep

-15

De

c-1

5

Mar

-16

Jun

-16

Sep

-16

De

c-1

6

Mar

-17

Jun

-17

Sep

-17

De

c-1

7

Mar

-18

Jun

-18

Sep

-18

SPIA Non-State Bond Accounts $ SPIA State Agency Bond Accounts $ SPIA SBA Bond Accounts $ TOTAL SPIA Bond Accounts %

Non-State Operating & Bond Accounts by type

Participant 9/30/18 balance % of Pool

Universities $2,898,539,094.34 12.32%

Colleges $542,203,713.21 2.30%

School Boards $401,350,143.59 1.71%

UniversityComponent Units $162,286,320.64 0.69%

Miscellaneous $77,149,451.09 0.33%

College Component Units $69,150,975.06 0.29%

StateComponent Units $62,824,130.73 0.27%

Counties $47,906,306.23 0.20%

Cities $12,387,304.72 0.05%

Grand Total $4,273,797,439.61 18.16%

*Miscellaneous includes various associations,

foundations, and finance corporations.

Non-State Operating Bond

Participant 09/30/18 balance % of Pool

State Agencies $932,924,778.68 4.05%

UniversityComponent Units $58,012,766.69 0.25%

StateComponent Units $8,252,428.76 0.04%

Universities $11,183.11 0.00%

School Boards $479.06 0.00%

Grand Total $999,201,636.30 4.25%

11

Summary of Macro Risks to the Investment Pool

Risk Status Risk Level

Florida Economy Unemployment rate continues to be stablePopulation continues to growHousing continues to improve.

Low

State Net Receipts Appears to have rebounded at the end of last FY and beginning of this FY. However, with recent natural disasters, we will continue to monitor closely.

Low / Medium

Pool Balance The total Pool balance has shown signs of growth in the past six months due to an net influx of State operating funds.

Low

Non State Agency SPIA

Non-State Agency Operating accounts continues to trend lower and is now below 20% of the pool.

Low

12

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

Investment Pool Distributed Income Rate (net)

13

Investment Pool Distributed Income

$230

$352 $364

$389$418

$121

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

$500

FY 2013/14 FY 2014/15 FY 2015/16 FY 2016/17 FY 2017/18 FYTD 2018/19

Mill

ion

s

Average Balance

Average Return (net of fees)

$21.0 billion $22.3 billion $23.6 billion $24.7 billion $23.3 billion $23.3 billion

0.98% 1.46% 1.42% 1.45% 1.66% 1.91%

14

Time Deposits Activity• March 2018 balance = $ 1,057,500,000

• April 2018

• Maturities $100 million

• Offered $100 million – Minimum bid 2.84%

• Awarded $79 million

• Exceeding bids $0

• May 2018





• June 2018

• Maturities $29.4 million




15

Time Deposits Activity• July 2018

• Maturities $6.6 million


• Awarded $0


• August 2018



• Awarded $0


• September 2018



• Awarded $0


• September 2018 balance = $1,008,500,000

16

Treasury Initiatives

17

Miscellaneous Updates New Investment Consultant – VERUS Contract signed on September 26th, 2018

Global Custody and Securities Lending Contract renewal is with BNY Mellon for final signature.

Staff update:Todd Artwell resignation and efforts to fill position

New Compliance Officer – David Wofford (replaced Catherine Shock)

Final interviews for the new Assistant Portfolio Management Analyst

18

Securities LendingReview

19

SECURITIES LENDING OVERVIEW

Market ValueSecurities on

Loan

Market ValueCollateralReceived

CollateralCoverage

Market Valueof Cash

Reinvestments

NAV

Cash $2,238,310,079 $2,286,913,289 102.17% $2,287,083,655 1.0001

Non - Cash $1,556,921,317 $1,593,461,298 102.35% N/A N/A

Total $3,795,231,395 $3,880,374,587

As of September 30, 2018

20

Securities Lending Income

$1,634,356 $1,588,475 $1,566,106

$3,515,825

$3,990,837

$3,314,578

$983,859

$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

$3,500,000

$4,000,000

$4,500,000

FY 2012/13 FY 2013/14 FY 2014/15 FY 2015/16 FY 2016/17 FY 2017/18 FYTD 2018/19

21

Cash Collateral Portfolio - (Securities Lending)As of September 30, 2018

Portfolio Characteristics

Total Market Value $2,287.1 million

NAV 1.0001

Yield (360 basis) 2.288%

Overnight Liquidity % 56.6%

Floating Rate Securities % 43.4%

Wght. Av. Days to Reset 17

WAM 128 days

Final Maturity Schedule

56%

18%

10%

16%

0%

10%

20%

30%

40%

50%

60%

Overnight 2 to 180 Days 181 to 360 Days 361 to 730 Days

22

Cash Collateral Portfolio - (Securities Lending)As of September 30, 2018

Top 5 Corporate Issuers

% of Cost Rating(S&P)

American Honda Finance 1.79% A+

Royal Bank of Canada 1.55% AA-

Shell International Finance 1.54% A+

Westpac Banking Corp 1.46% AA-

Citibank NA 1.46% A+

Corporate Exposure by Industry

Financials 18.1% $413.0 million

Non Financials 11.7% $266.7 million

Credit Quality (S&P) % of Cost Cost (in mil.)

U.S. Gov. Sec. and Repo* 70.2% $1,606.6

AAA 0.9% $19.8

AA 13.9% $317.9

A 15.1% $345.4

* Repo collateral: U.S. Gov. Securities.

Asset Class

Repo56%

Corporates30%

U.S. Agencies14%

23

Investment PoolReview

24

Brief Fixed Income Market Review

2nd & 3rd Quarters 2018

HIGHLIGHTS:

03/31/2018 09/30/2018 PeriodChange

Agency 46 47 +1

Corp – IG 109 106 -3

Corp – HY 354 316 -38

MBS 29 28 -1

ABS 48 38 -10

CMBS 67 60 -7

3/31/2018 9/30/2018 Period Change

3-month T-Bill 1.700% 2.196% +49.6 b.p.

2 Year T-Note 2.266% 2.819% +55.3 b.p.

5 Year T-Note 2.562% 2.953% +39.1 b.p.

10 Year T-Note 2.739% 3.061% +32.2 b.p.

30 Year T-Note 2.974% 3.206% +23.2 b.p.

Source: Bloomberg and Goldman Sachs

Treasuries Spread Sectors

Interest rates continued to rise and the yield curve continued to flatten due to the Fed normalization policy:

➢ Short-term rates continued under significant pressure as Federal Reserve delivered its eight rate hike since December 2015 and Fed Chairman delivered a September upbeat assessment of the U.S. economy, leading the market to increase expectations for additionalrate hikes in 2019.

➢ Strong U.S. economic growth during 2nd and 3rd quarters put pressure on intermediate to long-term rates.

Spread sectors continued to weaken in the 2nd quarter but regained strength in the 3rd quarter ending the six month period almost unchanged:

➢ The February and March correction in equities and the majority of fixed income market sectors continued during the 2nd quarter on fears of trade wars and of the impact of higher interest rates.

➢ Strong corporate earnings and strong economic growth in the U.S. led to improved investor risk sentiment in the 3rd quarter.

25

Treasury Yield Curve

*Chart Obtained from Bloomberg

• Treasury yields continued to rise during the 2nd and 3rd Quarters of 2018, mostly in the short and intermediate part of the

curve pressured by Central Bank policy. Curve continued to bear flatten in the period.

26

Barclays U.S. Corporate Investment Grade Index

*Chart Obtained from Bloomberg

• After hitting a post-recession low in early February, Investment Grade credit spreads continued to widened in second quarter of

2018 on fears of protectionism and the impact of higher interest rates.

• Strong corporate earnings and economic fundamentals in the U.S. led to improved investor risk sentiment in the 3rd quarter. IG

Corporate spreads finished the 3rd quarter at almost the levels of the beginning of the 2nd quarter of 1018.

27

Investment Pool Q2 & Q3 2018 Total Return(excl. Time Deposits)

0.48%

0.94%

0.87%

0.67%

0.35%

0.01%

0.00%

0.10%

0.20%

0.30%

0.40%

0.50%

0.60%

0.70%

0.80%

0.90%

1.00%

Total Pool Liquidity Ultra Short Duration Short Duration Int. Duration Long Duration

Period Return

28

Investment Pool Total Return (excl. Time Deposits)

0.48%

0.13%

1.08%

1.31%

0.37%

-0.08%

0.87%

1.16%

-0.20%

0.00%

0.20%

0.40%

0.60%

0.80%

1.00%

1.20%

1.40%

6 Months 1 Year 3 Year * 5 Year *

Returns as of September 30, 2018

Pool Benchmark * Annualized

29

Total Pool Distribution by Mandate23,413

3,139 5,291

2,932 2,642

8,357

1,053

23,175

2,992 5,305

2,921 2,618

8,279

1,059

23,474

3,265 5,351

2,941 2,627

8,280

1,011

-

5,000

10,000

15,000

20,000

25,000

Total Pool Liquidity Ultra Short Duration Short Duration Interm. Duration Long Duration Time Deposits

Total Market Value ($ millions)

9/30/2017 3/31/2018 9/30/2018

13.4%

22.6%

12.5% 11.3%

35.7%

4.5%

12.9%

22.9%

12.6% 11.3%

35.7%

4.6%

13.9%

22.8%

12.5%11.2%

35.3%

4.3%

0.0%

10.0%

20.0%

30.0%

40.0%

Liquidity Ultra Short Duration Short Duration Interm. Duration Long Duration Time Deposits

% of Market Value 9/30/2017 3/31/2018 9/30/2018

30

Total Pool Characteristics

65%

20%

3%4% 2% 2%

5%

62%

22%

3%4% 3% 2%

5%

63%

21%

3%4% 3% 2% 4%

0%

10%

20%

30%

40%

50%

60%

70%

Liquid U.S. Govt.Securities

Corporate CMBS ABS Foreign/Muni Agency CMO Other

Sector Allocation

9/30/2017 3/31/2018 9/30/2018

36%33%

15%

11%

5%

1%

30%

35%

16%14%

5%

0%

30%

36%

15%14%

5%

0%0%

5%

10%

15%

20%

25%

30%

35%

40%

< 1 Yr 1 - 3 Yrs 3 - 5 Yrs 5 - 10 Yrs 10 - 20 Yrs 20+ Yrs

Duration Breakdown

9/30/2017 3/31/2018 9/30/2018

Effective Duration 9/30/18 = 2.97



65%

7%5%

11%

5% 7%

63%

8%6%

12%

5% 6%

65%

8%5%

12%

5% 5%

0%

10%

20%

30%

40%

50%

60%

70%

U.S. Gov. &Cash

AAA AA A BBB & lower STIF & TimeDeposits

Quality Distribution

9/30/2017 3/31/2018 9/30/2018

Yield 9/30/18: 2.95%

Yield 3/31/18: 2.57%

Yield 9/30/17: 1.91%

31

Individual Mandate Key Characteristics

0.2

1.0

1.9

3.7

5.5

0.9

0.1

0.9

1.8

3.8

5.8

1.1

0.1

1.0

1.8

3.8

5.8

1.1

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

Liquidity Ultra Short Duration Short Duration Intermediate Duration Long Duration Time Deposits

Duration

9/30/2017 3/31/2018 9/30/2018

91.1%98.3%

77.2%

36.6%

46.3%

0.0%

86.2%90.7%

73.7%

38.2%46.5%

0.0%

94.6%90.0%

69.7%

39.6%45.1%

0.0%0.00

0.20

0.40

0.60

0.80

1.00

1.20

Liquidity Ultra Short Duration Short Duration Intermediate Duration Long Duration Time Deposits

% of Liquid U.S. Govt. Securities

9/30/2017 3/31/2018 9/30/2018

32

0.9

0.92

0.94

0.96

0.98

1

1.02

1.04

1.06

1.08

Sep

-07

Dec

-07

Mar

-08

Jun

-08

Sep

-08

Dec

-08

Mar

-09

Jun

-09

Sep

-09

Dec

-09

Mar

-10

Jun

-10

Sep

-10

Dec

-10

Mar

-11

Jun

-11

Sep

-11

Dec

-11

Mar

-12

Jun

-12

Sep

-12

Dec

-12

Mar

-13

Jun

-13

Sep

-13

Dec

-13

Mar

-14

Jun

-14

Sep

-14

Dec

-14

Mar

-15

Jun

-15

Sep

-15

Dec

-15

Mar

-16

Jun

-16

Sep

-16

Dec

-16

Mar

-17

Jun

-17

Sep

-17

Dec

-17

Mar

-18

Jun

-18

Sep

-18

Fair Value Factor

33

Top 10 Corporate Holdings at September 30, 2018

34

CORPORATE ISSUER MARKET VALUE % OF TOTALS & P LONG TERM

RANKING

Toyota Motor Corp 191,882,165.90 0.82% AA-

JPMorgan Chase & Co 190,133,542.52 0.74% A-

Citigroup Inc 173,610,298.68 0.74% BBB+

Bank of America Corp 168,534,157.09 0.72% A-

Wells Fargo & Co 140,121,854.65 0.60% A-

European Investment Bank 129,207,297.66 0.55% AAA

Goldman Sachs Group Inc/The 119,125,949.47 0.51% BBB+

US Bancorp 110,010,859.11 0.47% A+

Oracle Corp 80,844,278.98 0.34% AA-

Morgan Stanley 77,405,096.86 0.33% BBB+

Basket Clause• September 2018

• 32 items• $25.0 million Market Value

• ABS• $21.9 million • 4.63 years WAM / 3.28 years WAL

• MBS• $1.7 million• 16.73 years WAM / 7.53 years WAL

• CMBS• $0.02 million• 22.91 years WAM / 1.00 WAL

• Corporate• $1.4 million• 7.25 years WAM and WAL

• $25.2 million Cost• 0.11% of Investment Pool

• March 2018• 33 items• $28.0 million Market Value

• ABS• $23.8 million • 5.13 years WAM / 3.42 years WAL

• MBS• $2.7 million• 19.89 years WAM / 3.98 years WAL

• CMBS• $0.03 million• 23.14 years WAM / 1.14 WAL

• Corporate• $1.4 million• 7.65 years WAM and WAL

• $28.2 million Cost• 0.12% of Investment Pool

Statutes allow for 3% in basket clause items

35

Pool Rating

Maximum Score Rating

18 AAAf

37 AA+f

58 AAf

91 AA-f

120 A+f

184 Af

290 A-f

360 BBB+f

• Policy requirement: A+ or better using S&P rating matrix

• S&P Rating as of September 30, 2018 = A+f

• Credit Score as of September 30, 2018 = 54.52 (AAf)S&P rating matrix

36

30

40

50

60

70

80

90

100

110

120

Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18

Credit Score

Portfolio % vs. Allocation Rangesas of September 30, 2018

Liquidity* & Ultra-ShortDuration

Short Duration Portfolio Intermediate DurationPortfolio

Long Duration Portfolio Time Deposits Program

70% 50%50%50%

10%10%10%30%

6%

0%

35.9%

4.3%

35.3%

11.2%12.5%

* avg. of previous 12 end-of-month balances for Liquidity Portfolio.

37

Individual Mandates Review

38

Liquidity, Ultra-Short and Short Duration Portfolios

39

6 Mo* 1 Year 3 Year 5 Year

Portfolio 0.94 1.56 0.88 0.60

Benchmark 0.93 1.53 0.78 0.48

Excess Return

0.01 0.03 0.10 0.12

TOTAL RETURNS as of September 30, 2018

* not annualized.

Liquidity Portfolio - Performance and Attribution

Information provided by BNY Mellon.

2nd and 3rd Quarter 2018 ( +0.9 b.p.)

+ Duration / Yield Curve: Treasury yields sold off in the 0 to 1-year area over 2Q18 to 3Q18. The Fed raised rates a total of 50 basis points during the quarters and the yield curve bear flattened particularly in the 1-3 month area, which helped performance as a majority of the portfolio is <1 month. Tactical duration plays also helped performance.

+ Yield: We continue to benefit from a slight yield advantage obtained mostly by investing in short-term commercial paper and to a lesser extent by a small exposure to the 3 to 9 month part of the curve.

ATTRIBUTION NOTES

40

Liquidity Portfolio - Current Strategy / Portfolio Characteristics

Current Strategy

Duration / Yield Curve Trying to take advantage of the steepness of the short curve by extending as cash becomes available.

Treasuries / Agencies Looking to find attractive agencies in the secondary market that offer incremental yield pick versus treasuries.

Other Take full advantage of CP opportunities. Continue to favor term vs overnight repo.

Portfolio Characteristics Summary

41

Yield Duration Non - Treasuries

%

ICEML US Trs. 0-3 M9/30/2018

2.08 0.16 0.0

PORTFOLIO:

9/30/2018 2.02 0.11 55.8

3/31/2018 1.47 0.11 60.7

9/30/2017 1.11 0.21 60.6

Data obtained from BNYM and Bloomberg

6 Mo* 1 Year

Portfolio 0.87 1.14

Benchmark 0.77 0.97

Excess Return 0.10 0.17


* not annualized.

Ultra Short Duration Portfolio - Performance and Attribution


42

2nd and 3rd Quarter 2018 ( +10.4 b.p.)

+ Yield: The portfolio has maintained a healthy yield advantage versus the benchmark

since inception. 48% of the portfolio is invested in Agency product which provides a modest

spread to treasuries, with another 9.5% in high quality corporates and supra sovereigns which

provide additional spread over treasuries. This with the addition of treasury coupon strips

supplies the yield over the benchmark which invests strictly treasuries.

+ Duration / Yield Curve: We have maintained a short in the 2yr bucket for the majority of

period as 2yr yields increased by another 50bps. The portfolio has tracked an approximately

90% duration correlation with the benchmark overall, while maintaining a short in the 18-24mo

bucket. In the event that the portfolio did invest in the 2yr sector it was in the corporate sector

to capture the additional spread. Most new issues in the sector were split between the 2yr fixed

and 2yr floating bonds that were offered.

+/- Non U.S. Government Sector Exposure: The portfolio has maintained the allocation in

spread product consistently over the last two quarters. This allocation has been outlined in the

paragraph above.

ATTRIBUTION NOTES

Ultra Short Duration Portfolio - Current Strategy / Characteristics

Data obtained from BNYM / Wilshire / Bloomberg

Current Strategy

Macro There are several indicators that show the

2YR doesn’t have a lot of room to

continuing to sell off. A troubling sign

which could sidetrack the strategy is the

TIC data which continues to show China

decreasing their treasury holdings.

Duration / Yield Curve It may be time to shift strategy to a longer

duration. This is based on the idea that the

FED seems overextended and may have to

slow down their pace.

Credit / Other Spread

Sectors

The allocation won’t change dramatically.


Yield Duration Non-Treasuries

% BBB

%

ICEML 0-2 YrUS Treasuries Index

9/30/20182.59 1.00 0.0 0.0

PORTFOLIO:

9/30/2018 2.67 1.04 56.7 1.1

3/31/2018 2.08 0.85 54.2 1.6

43

Ultra Short Duration Portfolio – Portfolio Characteristics (continued)

91%

3% 1% 3% 2%

90%

3% 3% 3% 1%

100%

0% 0% 0% 0%0%

20%

40%

60%

80%

100%

Govt & Cash AAA AA A BBB

Quality

3/31/2018 9/30/2018 Benchmark

46% 45%

5% 4% 0% 0%

43% 49%

7% 3% 0%

-3%

100%

0% 0% 0% 0% 0%

-20%

0%

20%

40%

60%

80%

100%

Treasury Govt. Agn Corporate Bonds Foreign Muni Cash

Sector

3/31/2018 9/30/2018 Benchmark

1%

0%

5%2%

0%

5%

0% 0% 0%0%

5%

10%

15%

20%

25%

Industrial Utility Financial

Industry

3/31/2018 9/30/2018 Benchmark

44

6 Mo* 1 Year 3 Year 5 Year

Portfolio 0.67 0.29 0.69 0.83

Benchmark 0.58 0.20 0.60 0.74

Excess Return

0.09 0.09 0.09 0.09


* not annualized.

Short Duration Portfolio - Performance and Attribution


2nd Quarter 2018 and 3rd Quarter 2018 ( +8.9 b.p.)

+ Duration / Yield Curve: Treasury yields sold off in the 1 to 5-year area over 2Q18 to 3Q18. A bias toward short overall duration and the portfolio’s underweight to the two-year area of the curve, contributed to performance as the yield curve bear flattened over the quarters. Tactical duration plays also helped performance.

+ Credit Exposure: IG corporate spreads widened in 2Q18 before tightening throughout 3Q18. Positioning in Corporates contributed to performance during this period due to tactical addition of credit during a period of rising spreads, followed by a subsequent rally.

+/- Yield: We maintained a benchmark-relative yield advantage through a majority of the period.

ATTRIBUTION NOTES

45

Short Duration Portfolio - Current Strategy / Portfolio Characteristics

Data obtained from BNYM / Wilshire / Bloomberg

Current Strategy

Duration / Yield Curve Tactical with short duration bias overall. Transitioning to a more bulleted structure: continue to decrease short-term exposure (0 to 1 year) as well as reducing new investments in the 4 to 5 year part of the curve.

Treasuries / Agencies Maintaining a slight underweight to Treasuries and monitoring both agency bullets and callables for opportunities to increase benchmark-relative yield.

Credit / Other Spread Sectors

Looking to replace short-term corporate credit exposure and extend into 3 to 4 year area, at appropriate levels. Maintaining a modest overweight to credit, reducing BBB exposure, and tactically extending duration in our high-quality names.


Yield Duration Duration% > 3Years

% BBB

ICEML 1-3Yr A-AAA US Corp & Gov. Index

9/30/2018

2.90 1.88 0.0 1.5

Portfolio:

9/30/2018 2.86 1.76 4.1 2.8

3/31/2018 2.40 1.79 2.4 2.9

9/30/2017 1.56 1.87 2.2 3.4

46

Short Duration Portfolio – Portfolio Characteristics (continued)

78%

5%15%

2%

0%

75%

5%

18%

1%

1%

73%

8%18%

1% 1%

80%

7%12%

1% 1%

-20%

0%

20%

40%

60%

80%

100%

Aaa/Govt Aa A Baa NR

Quality9/30/2017 3/31/2018 9/30/2018 Benchmark

10%

88%

2% 0%

12%

85%

2% 0%

15%

80%

4%0%3%

97%

0% 0%0%

20%

40%

60%

80%

100%

< 1 year 1-3 years 3-5 years > 5 years

Duration Distribution

9/30/2017 3/31/2018 9/30/2018 Benchmark

47

Short Duration Portfolio – Portfolio Characteristics (continued)

66%

11%22%

0% 1%

0%

66%

7%

25%

1% 0%

0%

65%

5%

26%

4% 0% 0%

69%

4%

18%

9%0%

0%

-20%

0%

20%

40%

60%

80%

100%

Treasury Govt. Agn Corporate Bonds Foreign Muni Cash

Sector9/30/2017 3/31/2018 9/30/2018 Benchmark

9%

0%

12%11%

0%

14%11%

0%

15%

7%

0%

10%

0%

5%

10%

15%

20%

25%

Industrial Utility Financial

Industry 9/30/2017 3/31/2018 9/30/2018 Benchmark

48

Intermediate and Long Duration Portfolios

49

Managers Outlook

• US growth to revert to 2.5-3% range as tax cut benefits recede

• Federal Reserve expected to hike in Dec for the 4th time in 2018, Investors don’t agree with Fed outlook of 3 or more hikes in 2019

• Europe and Emerging Markets growth to cool as higher US rates, trade tensions and geo-politics impact negatively

• 10-year Treasury yields to remain above 3%, curve flatter as short rates rise

• Only Agency MBS underperforming Treasuries, High Yield credit best performer

• Absolute returns continue to be negative, but higher yields have boosted income

• Managers continue to focus on belly of the curve

50

Intermediate Duration Portfolio Net of Fee Performance as of September 30, 2018

Intermediate Duration Portfolio

Ranked by Assets Mgr Annualized

Market Value Rank* 3 Month 6 Month 1 Year 2 Year 3 Year 5 Year

Galliard $786,018,674.44 1 0.271 2 0.418 1 -0.464 2 -0.044 2 1.308 1

IR+M $705,872,036.41 3 0.271 3 0.329 3 -0.729 4 -0.187 4 1.086 3

Sterling Capital $695,462,357.14 2 0.292 1 0.396 2 -0.430 1 -0.018 1 1.237 2

MetWest $439,505,272.30 4 0.149 4 0.176 4 -0.682 3 -0.170 3 0.961 4

Total $2,626,858,340.29 0.256 0.348 -0.563 -0.095 1.159 1.598

Benchmark 0.214 0.220 -0.963 -0.369 0.909 1.475

* 1 & 3 Year Risk-Adjusted Ranking

51

Long Duration Portfolio Net of Fee Performance as of Sept 30, 2018

Long Duration Portfolio

Ranked by Assets Mgr Annualized

Market Value Rank* 3 Month 6 Month 1 Year 3 Year 5 Year 7 Year 10 Year 15 Year

Amundi Pioneer $1,203,199,079.56 3 0.188 7 0.052 4 -0.986 8 1.821 3 2.582 2 2.686 1 4.961 1 4.379 1

Fidelity $875,872,432.87 7 0.066 13 0.041 5 -0.961 7 1.697 5 2.249 8 2.229 8 4.351 7 4.297 2

Sterling Capital $861,511,885.65 1 0.261 1 0.112 1 -0.494 1 1.887 1 2.608 1 2.574 3 4.433 5

Galliard $734,721,735.37 5 -0.025 14 -0.028 10 -1.065 11 1.554 7 2.564 3 2.586 2

Prudential $728,077,523.28 6 0.210 4 -0.027 9 -1.030 9 1.721 4 2.454 5 2.475 4 4.482 4

Western Asset $726,914,525.71 2 0.203 6 0.073 2 -0.673 2 1.865 2 2.557 4 2.406 5 4.572 2 4.025 6

Manulife $668,714,798.33 8 0.247 3 0.071 3 -0.808 3 1.656 6 2.335 6 2.248 7 4.554 3 4.175 3

Wells Capital $623,237,479.61 4 0.153 8 -0.076 13 -0.890 4 1.553 8 2.334 7 2.204 9 4.101 12 4.092 4

Goldman Sachs $481,677,737.95 9 0.099 11 0.036 6 -0.937 5 1.457 9 2.134 11 2.008 13 4.104 11 3.971 8

Blackrock $399,890,269.14 10 0.142 9 -0.008 8 -1.041 10 1.350 12 2.194 10 2.020 12 4.138 9 3.916 9

Nuveen $387,439,563.73 11 0.137 10 0.009 7 -0.947 6 1.382 10 2.132 12 2.175 10 4.398 6 4.003 7

Insight Investment $255,054,410.96 12 0.206 5 -0.039 12 -1.122 12 1.367 11 2.230 9 2.277 6

Macquarie $228,710,107.20 13 0.081 12 -0.204 14 -1.283 14 1.275 13 2.118 13 1.907 14 4.243 8 4.092 5

Smith Graham $102,902,885.31 14 0.248 2 -0.034 11 -1.237 13 1.210 14 2.101 14 2.075 11 4.116 10 3.853 10

Total $8,277,924,434.67 0.157 0.015 -0.920 1.620 2.345 2.228 4.350 3.965

Benchmark 0.019 -0.139 -1.216 1.312 2.161 2.024 3.773 3.776

* 1, 3 & 5 Year Risk-Adjusted Ranking

52

Long Duration Manager Attribution

MANAGER Q2 & Q3 2018

RANK

DURATION YIELD CURVE SECTOR SELECTION

STERLING 1 + + + -

WESTERN ASSET 2 + + 0 +

WELLS 13 0 - + -

MACQUARIE 14 - - - +

53

Fixed Income Characteristics (as of Sept 30, 2018)

INTERMEDIATE DURATION COMPOSITE

Portfolio Benchmark

Coupon 2.94% 2.64%

YTM 3.30% 3.21%

Effective Duration

3.82 years 3.90 years

LONG DURATION COMPOSITE

Portfolio Benchmark

Coupon 3.27% 3.21%

YTM 3.54% 3.46%

Effective Duration

5.75 years 5.91 years

54

Credit Quality

53.6%

10.5%

26.4%

7.2%

2.4%

56.3%

9.2%

25.9%

7.2%

1.4%

57.4%

8.8%

24.9%

7.5%

1.4%

65.5%

4.2%

13.2%15.3%

1.8%0%

10%

20%

30%

40%

50%

60%

70%

US Govt, Aaa & Cash Aa A Baa < Baa, STIF & Other

Intermediate Duration

9/30/2017 3/31/2018 9/30/2018 Barclays Int Gov/Credit Index

61.3%

5.1%

17.6%

10.7%5.4%

63.1%

4.5%

18.3%

10.4%

3.7%

63.5%

4.5%

19.0%

11.0%

2.0%

72.0%

3.4%

10.4% 12.4%

1.8%

0%

10%

20%

30%

40%

50%

60%

70%

80%

US Govt, Aaa & Cash Aa A Baa < Baa, STIF & Other

Long Duration

9/30/2017 3/31/2018 9/30/2018 Barclays Aggregate Index

55

Sector Allocation

23%

6%0%

46%

14%10%

1%

24%

5%0%

44%

15%10%

1%

26%

5%0%

43%

15%10%

1%

59%

5% 4%

33%

0% 0% 1%

0%

10%

20%

30%

40%

50%

60%

70%

Treasury Govt Agcy Snat'l/Foreign Corporate/Muni MBS CMBS/ABS Cash



12%

2%1%

34%

28%

15%

9%

16%

2%1%

33%

28%

15%

5%

19%

2%1%

34%

29%

14%

1%

38%

3%2%

26% 28%

2% 0%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Treasury Govt Agcy Snat'l/Foreign Corporate MBS CMBS/ABS Cash

Long Duration


56

Corporate Sector Allocation23.4%

3.9%

18.8%

21.6%

3.8%

18.7%21.0%

4.0%

17.9%18.4%

1.5%

12.7%

0%

5%

10%

15%

20%

25%

Industrial Utility Finance



17.1%

2.4%

14.2%

16.5%

2.4%

14.5%16.7%

2.4%

15.4%16.1%

1.8%

8.2%

0%

5%

10%

15%

20%

Industrial Utility Finance

Long Duration


57

Effective Duration Distribution

15.2%

24.9%

36.7%

10.6%11.8%

0.5% 0.3%

13.3%

20.4%

42.1%

12.9% 11.1%

0.3% 0.0%

12.5%

23.7%

37.6%

15.3%

10.7%

0.2% 0.0%0.3%

40.8%

29.7%

18.5%

10.7%

0.0% 0.0%0.00

0.10

0.20

0.30

0.40

0.50

<1 Year 1-3 Years 3-5 Years 5-7 years 7-10 Years 10-20 Years >20 Years



11.7%

21.8%

29.2%

13.2%

9.8%

12.7%

1.7%

9.0%

15.4%

30.0%

21.8%

9.9%

13.8%

0.1%

10.0%

15.0%

28.8%

22.4%

10.0%

13.8%

0.1%0.2%

23.7%

30.8%

23.4%

7.5%

14.4%

0.1%0.00

0.05

0.10

0.15

0.20

0.25

0.30

0.35

<1 Year 1-3 Years 3-5 Years 5-7 years 7-10 Years 10-20 Years >20 Years

Long Duration


58

Effective Duration by Sector

1.08

1.75

0.82

0.02

1.15

1.65

1.02

0.00

1.20

1.60

1.02

0.00

2.51

1.39

0.00 0.01

-0.50

0.50

1.50

2.50

3.50

Treasury/Agcy Corp MBS/CMBS/ABS Other



1.65

2.47

1.38

-0.04

1.71

2.35

1.79

-0.05

1.70

2.24

1.83

-0.03

2.52

1.89

1.50

0.00

-0.50

0.00

0.50

1.00

1.50

2.00

2.50

3.00

Treasury/Agcy Corp MBS/CMBS/ABS Other

Long Duration


59

Overall Ranking Using Absolute and Risk-Adjusted Returns

Overall Ranking

Sept 30, 2018

Ranking as of

March 31, 2018

Weighted

Return

Weighted Info

Ratio

Weighted

Sharpe Ratio

Weighted

Alpha

Sterling 1 1 1 1 1 1

Western Asset 2 6 3 6 3 3

Amundi Pioneer 3 5 2 5 2 2

Wells 4 2 6 2 7 7

Galliard 5 4 5 3 5 5

Prudential 6 3 4 4 4 4

Fidelity 7 8 8 8 8 8

Manulife 8 7 7 7 6 6

Goldman Sachs 9 10 10 10 10 10

Blackrock 10 9 9 9 9 9

Nuveen 11 12 12 11 12 12

Insight Investment 12 11 11 12 11 11

Macquarie 13 13 14 13 14 14

Smith Graham 14 14 13 14 13 13

Rankings Based on 1, 3 and 5

Year Risk / Return Metrics

60

Watch List Worksheet September 30, 2018LONG DURATION Danger Zone 6 - 8 Months

QUANTITATIVE FACTORS Max Exceeded 9 Months

Any of the Following Conditions

(#1) Trailing 5-Year Annualized Net Performance Below Benchmark for 6 of 12 Months

Amundi Pioneer Blackrock Fidelity Galliard Goldman

Insight

Investment Macquarie Manulife Nuveen Prudential Smith Graham Sterling Wells Western Asset

Mar, Feb, Jan

18, Dec, Nov,

Oct 17

Sept, Aug,

July, June,

May, Apr, Mar,

Feb, Jan 18,

Dec, Nov, Oct

17 Mar 18

Sept, Aug, July,

June, May, Apr,

Mar, Feb, Jan 18,

Dec, Nov, Oct 17

Sept, Aug, July,

May, Apr, Mar,

Feb, Jan 18,

Dec, Nov, Oct

17

Sept, Aug, July,

June, May, Apr,

Mar, Feb, Jan

18, Dec, Nov,

Oct 17

(#2) Trailing 3-Year Annualized Net Performance Below Benchmark for 9 out of 12 Months


Insight


Sept 17

June, Mar, Feb,

Jan 18, Dec,

Nov, Oct 17

Sept, Aug, July,

June, May, Apr,

Mar, Feb, Jan 18

June, May, Apr,

Mar, Feb, Jan

18, Dec, Nov,

Oct 17

Sept, Aug, July,

June, May, Apr,

Mar, Feb, Jan

18, Dec, Nov 17

(#3) Mgr's (1 & 3 Year) Risk-Adjusted Ranking in Bottom 4 for 9 out of 12 Months


Insight


July 18

Sept, Aug,

June, May, Apr,

Mar, Feb, Jan

18, Dec, Nov,

Oct 17

Sept, Aug, July,

June, May, Apr,

Mar, Feb, Jan 18,

Dec, Nov, Oct 17

Sept, Aug, July,

June, May, Apr,

Mar, Feb, Jan

18, Dec, Nov,

Oct 17

Sept, Aug, July,

June, May, Apr,

Mar, Feb, Jan

18, Dec, Nov,

Oct 17

(#4) Trailing 1-Year Net Performance Below Benchmark & Bottom Half (8th or Lower) of Mandate for 9 out of 12 Months


Insight


Dec, Nov 17

June, Mar, Nov

17

Sept, July, June,

May, Apr, Nov 17 Nov, Oct 17

Sept, Aug, July,

June, May, Apr,

Mar, Feb, Jan

18, Dec, Nov,

Oct 17

61

Watch List Update – Long Duration

Smith Graham Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18

3 Month Outperformance No No No Yes Yes Yes Yes No No No No No No Yes Yes

Monthly Outperformance -0.01% -0.15% 0.12% 0.03% 0.00% 0.04% 0.00% -0.10% -0.10% 0.04% -0.05% -0.12% 0.11% 0.03% 0.10%

Cumulative Performance (Linked) from Watch List Inception -0.01% -0.16% -0.04% -0.01% -0.01% 0.03% 0.04% -0.07% -0.17% -0.13% -0.18% -0.29% -0.19% -0.16% -0.06%

1 Month Return Rank 11 14 3 9 10 7 12 14 9 8 9 14 3 7 3

Rolling 3 Month Return Rank 12 14 12 13 5 7 11 14 14 13 10 13 13 13 2

1 Year Return Rank 14 14 13 13 14 14 14 14 14 14 14 14 14 14 13

62

Recent Actions

• Removed Nuveen from Watch List Status

• Extended Smith Graham’s Watch List Period by 6 Months

• Reallocated $200 Million from Macquarie to Better Performing Managers

63

treasury investment council · florida economy •steady recovery continues. •september...

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