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' City of Saint Anthony <br /> Investment Portfolio Review Report <br /> ' • Com arson of portfolio yield to treasu re yields.The average yield on the portfolio <br /> was compared to U.S. Treasury maturities and data was obtained from the G13 <br /> Federal Reserve statistical release for selected interest rates <br /> (www.federalreserve.gov/releases). The average yield at December 1, 2000 on <br /> Treasuries is 5.69%. This information is shown in Graph V. The City's average <br /> yield to maturity was 1.08% higher than the average yield experienced with <br /> treasuries. Therefore, the City's average yield to maturity is higher than that <br /> experienced in the general market. See also Graph I. <br /> 1 <br /> 2. The investment portfolio is exposed to which kinds of risks? <br /> ' Investment portfolios are subject to inherent types of risks.These risks are: <br /> ' •Credit risk-the risk that the issuer will be unable to redeem the investment <br /> •Market risk-the risk that an investment will lose market value during a period of <br /> rising interest rates. <br /> •Interest rate risk-the risk that an investment will yield a lower rate of return than is <br /> currently being experienced in the market place due to rising interest rates. <br /> •Liquidity risk-the risk an instrument may not be readily saleable before it's <br /> maturity date. <br /> St Anthony's investment portfolio. The City's investment portfolio is comprised of <br /> money market deposits, commercial paper, certificates of deposit, zero coupon bonds, <br /> stripped coupon bonds, asset backed bonds and governmental agency bonds. These types <br /> of investments are allowable under law and are found in many local government's <br /> portfolios. Each type of security is prone to different kinds of risk. See Graph II for an <br /> analysis of investment by type. See also Graph III for the distribution of maturity values <br /> by year. <br /> •Money market. Money market accounts are subject to interest rate risk because this <br /> type of security is very liquid and generally yields a lower rate of return than could <br /> be gained from other types of investments. Many local governments maintain <br /> money market accounts in order to meet cash flow needs that may not be <br /> anticipated in a cash flow projection. The City's portfolio at November 30'h <br /> included$2,214,339 in money market deposits across 8 money market accounts,or <br /> 18% of total investments. The rates on the City's money market accounts range <br /> from 5.25% to 6.35%. Currently, most of the City's money market funds are in the <br /> Firstar money market account. This account has a lower yield than 4M. The City <br /> has an agreement with Firstar whereby excess funds are swept into the money <br /> market account in return for waived banking fees. <br /> Recommendation#1: Consider reducing the amount in money market deposits <br /> and investing a greater amount into commercial paper, which would yield a <br /> higher rate of return. Consider consolidating the money market accounts into the <br /> 4M fund in order to gain a higher annualized yield. Review the cost effectiveness <br /> of waived banking fees by Firstar to a higher yield through the 4M money market <br /> account. <br /> ' Prepared by Ehlers and Associates 2 <br /> February 5, 2001 <br />