HomeMy WebLinkAbout05-12-2022 IOC Agenda PacketCity of San Luis Obispo, Agenda, Planning Commission
Agenda
INVESTMENT OVERSIGHT COMMITTEE
Thursday, May 12, 2022
3:00 p.m. REGULAR MEETING Council Hearing Room
990 Palm Street
San Luis Obispo, CA
CALL TO ORDER: Chair Brigitte Elke
ROLL CALL : Committee Members Natalie Harnett, Derek Johnson, Debbie Malicoat, Erica
A. Stewart, Anni Wang, and Chair Brigitte Elke
OTHERS PRESENT: David Reeser, Managing Director for PFM Asset Management LLC
Monique S. Spkye, Managing Director for PFM Asset Management LLC,
and Serenity Whorley, Recording Secretary
PUBLIC COMMENT: At this time, people may address the Committee about items not on the
agenda. Persons wishing to speak should come forward and state their name and address.
Comments are limited to three minutes per person. Items raised at this time are generally referred
to staff and, if action by the Committee is necessary, may be scheduled for a future meeting.
CONSIDERATION OF MINUTES
1. Minutes of the Investment Oversight Committee of February 10, 2022
BUSINESS ITEMS
2. Presentation of the Quarterly Investment Report on Portfolio Performance & Economic
Outlook
Recommendation: Receive and confirm investment policy compliance.
Investment Oversight Committee Agenda for Thursday, May 12, 2022 Page 2
COMMENT AND DISCUSSION
3. Staff Updates and agenda forecast
ADJOURNMENT
The next Regular Meeting of the Investment Oversight Committee is scheduled for
Thursday , August 11 ,2022, at 3:00 p.m., in the Council Hearing Room, 990 Palm Street, San
Luis Obispo, California.
The City of San Luis Obispo wishes to make all of its public meetings accessible to the
public. Upon request, this agenda will be made available in appropriate alternative formats to
persons with disabilities. Any person with a disability who requires a modification or
accommodation in order to participate in a meet ing should direct such request to the Finance
Department at (805) 781-7125 at least 48 hours before the meeting, if possible.
Telecommunications Device for the Deaf (805) 781-7107.
Meeting audio recordings can be found at the following web address:
http://opengov.slocity.org/WebLink/1/fol/61037/Row1.aspx
Minutes - Draft
Investment Oversight Committee
Thursday, February 10, 2022
Regular Meeting of the Investment Oversight Committee
CALL TO ORDER
A Regular meeting of the Investment Oversight Committee was called to order on Thursday, February
10, 2022, at 4:00 p.m. Chair Brigitte Elke with all members present via teleconference.
ROLL CALL
Present: Committee Members Natalie Harnett, Derek Johnson, Erica A. Stewart, Anni
Wang, and Chair Brigitte Elke
Absent: Committee Member Debbie Malicoat
Others Present: David Reeser, Managing Director for PFM Asset Management LLC, Monique
Spyke, Managing Director for PFM Asset Management LLC, and City Clerk
Teresa Purrington
PUBLIC COMMENT ITEMS NOT ON THE AGENDA
None
--End of Public Comment--
APPROVAL OF MINUTES
1. Review of Minutes of the Investment Oversight Committee Meeting of November 18,
2021:
PUBLIC COMMENT
None
--End of Public Comment--
ACTION: UPON MOTION BY COMMITTEE MEMBER ERICA A. STEWART,
SECONDED BY COMMITTEE MEMBER JOHNSON, CARRIED 5-0-1 (COMMITTEE
MEMBER MALICOAT ABSENT), to approve the November 18, 2021, minutes, as presented.
City of San Luis Obispo, Title, Subtitle
Minutes - Investment Oversight Committee Minutes of Thursday, February 10, 2022 Page 2
BUSINESS ITEMS
2. Presentation of the Quarterly Investment Report on Portfolio Performance
Monique Spyke, Managing Director for PFM Asset Management LLC, provided a PowerPoint
presentation and responded to Committee inquiries.
Public Comment
None
--End of Public Comment--
ACTION: UPON MOTION BY COMMITTEE MEMBER HARNETT, SECONDED BY
COMMITTEE MEMBER WANG, CARRIED 5-0-1, (WITH COMMITTEE MEMBER
MALICOAT ABSENT) recommendation accept the report and adheres to the City’s policies.
COMMENT AND DISCUSSION
By consensus the Committee asked PFM to provide information that influences the investments.
ADJOURNMENT
The meeting was adjourned at 4:44 pm. The next Regular Meeting of the Investment Oversight
Committee is scheduled for Thursday, May 12 , 20 22, at 3:00 pm.
APPROVED BY INVESTMENT OVERSIGHT COMMITTEE: XX/XX/XXXX
Quarterly Investment Report
AS OF March 31, 2022
May 12, 2022
This report presents the City’s investment portfolio for
the quarter ending March 31,2022.It has been
prepared to comply with regulations contained in
California Government Code Section 53646.The report
includes all investments managed by the City on its
own behalf as well as for other third-party agencies on
a fiduciary basis such as the Whale Rock Commission.
It also includes all City related investments held by
trustees for bond debt service obligations.As required,
the report provides information on the investment type,
issuer,maturity date,cost,and current market value for
each security.
Market Considerations
U.S. economic conditions were
characterized by:
•persistent high inflation;
•the Federal Reserve (Fed)
kicking off a shift to tighter
monetary policy;
•rapidly rising interest rates;
•elevated energy and commodity
prices;
•increased volatility and risk-off
sentiment in credit and equity
markets; and
•stronger than ever labor market.
As a result of surging inflation that
proved not to be transitory, the Fed
raised the overnight federal funds
target rate to 0.25% in March 2022
for the first time since December
2018, underscoring the risk that
inflation now poses to economic
growth and stability.
Source: Bloomberg as of March 31, 2022.
0.48%
2.33%
2.46%2.34%2.45%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3
M
1
Y
2
Y
3
Y
4
Y
5
Y
10
Y
30
YMaturity
U.S. Treasury Yield Curve
March 31, 2022
December 31, 2021
1-5 Year Indices
-3.16%-3.08%
-1.81%
-3.62%
-4.80%
-6.0%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%U.S. TreasuryAgencyABSCorp A-AAACorp BBBQ1 2022
What we are watching…
While the economic recovery
continues on a positive track,
several risk factors loom,
including:
•record inflation,
•Fed policy uncertainty,
•the Russian-Ukraine war, and
•the ever-present risk of a
Covid resurgence.
At quarter end, expectations
had risen for one -or two-50 bp
Fed rate increases, and a total
of 200 to 250 bps of increases
for the year.
Source: Bloomberg as of March 31, 2022.
2.6%
5.4%5.4%
7.0%
7.9%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
Dec-20 Mar-21 Jun-21 Sep-21 Dec-21 Mar-22
Consumer Price Index
% Change YoY
Mar 2021
6.0%
0.16%
0
Jun 2021
5.9%
0.25%
0
Sept
2021
4.7%
0.28%
0
Dec 2021
3.9%
0.73%
3
Mar 2022
3.6%
2.34%
7
Indicators
Unemployment Rate
2-Year Treasury Yield
Fed Projections
# of 2022 Rate Hikes
“…the Committee will
aim to achieve
inflation moderately
above 2 percent for
some time…”
“Inflation is
elevated, largely
reflecting
transitory
factors.”
“Inflation remains elevated,
reflecting supply and demand
imbalances… higher energy
prices, and broader price
pressures.”
Current Cash and Investment Summary
The following is a summary of the City’s cash
and investments based on market value, as of
March 31, 2022, compared to the prior quarter.
Investment Entity March 31, 2022 December 31, 2021 Percent of Total**
City Held Cash & Investments $73,995,643.53 $39,471,110 37%
LAIF Held Investments $24,024,807.47 $24,010,984 12%
PFM Managed Investments*$100,438,433.94 $102,900,224 51%
Trustee Held Investments $72,869.16 $72,827 <1%
TOTAL $198,531,754.10 $169,715,785 100%
*Figures shown exclude accrued interest. **Details may not add up to total due to rounding.
Current Cash and Investment Summary
There are several factors which
result in changes in cash and
investment balances from
month-to-month and quarter-to-
quarter, dependent on the
receipt of revenues or a large
disbursement.
•Some major City revenues are received on a periodic rather
than a monthly basis. Property Tax is received in December,
January, April, and May of each year. Transient Occupancy
Tax is received monthly but varies considerably due to
seasonality.
•Payments for bonded indebtedness or large capital projects
can reduce the portfolio substantially in the quarter in which
they occur.
•The City pays its CalPERS obligation in a lump sum at the
beginning of the fiscal year to achieve interest savings.
Factors
Securities
Securities in the City’s
portfolio are priced by
Refinitiv, an independent
pricing service at the end of
every month. In some
cases, the City may have
investments with a current
market value that is greater
or less than the recorded
value. These changes in
market value are due to
fluctuations in the
marketplace having no
effect on yield, as the City
does not intend to sell
securities prior to maturity.
Nevertheless, these market
changes can impact the
total value of the portfolio.
Security Type Market Value
% of
Portfolio
% Change
vs. 12/31/21
Permitted by
Policy
U.S. Treasury 55,132,300.24 54.9%2.5%100%
Federal Agency 22,338,068.91 2.1%-2.9%100%
Municipal Obligations 2,101,694.50 22.2%0.0%30%
Negotiable CDs 4,587,800.69 13.9%-0.3%30%
Corporate Notes 13,933,943.09 4.6%1.6%30%
Asset-Backed Securities 2,260,286.08 2.3%-0.5%15%
Securities Sub-Total 100,354,093.51
Money Market Fund $84,340.43 0.1%-0.3%20%
Accrued Interest 242,799.15
Securities Total 100,681,233.09 100.0%
PFMAM Managed 3/31/2022 12/31/2021
Average Maturity
(Years)2.15 2.19
Effective Duration1 2.01 2.04
Average Market Yield 2.10%0.84%
Total Return
Total return is calculated
based on interest and both
realized and unrealized
changes in market value;
this is expressed as a rate of
return over a specified
period of time based on cost
and is backward-looking.
•Focused on long-term
performance and
growth
•Affected by both yield
and market value
fluctuations
•Reflects “true value” of
the portfolio
•Recommended
approach by the
Government Finance
Officers Association
Total Rate
of Return 3 Months 1 Year 3 Years Since
Inception
City of SLO -2.47%-2.90%1.13%1.29%
0–5 Treasury
Index -2.53%-2.97%0.93%1.10%
Variance 0.05%0.07%0.20%0.19%
1Effective duration is the approximate percentage change in price for each 1% change in interest rates.
Investment Objectives
The investment objectives of the City of San Luis Obispo are first, to
provide safety of principal to ensure the preservation of capital in the
overall portfolio; second, to provide sufficient liquidity to meet all operating
requirements; and third, to earn a commensurate rate of return consistent
with the constraints imposed by the safety and liquidity objectives. The
City follows the practice of pooling cash and investments for all funds
under its direct control. Funds held by outside fiscal agents under
provisions of bond indentures are maintained separately. Interest earned
on pooled cash and investments is allocated quarterly to the various
Quarterly Investment Report funds based on the respective fund’s
average quarterly cash balance. Interest earned from cash and
investments with fiscal agents is credited directly to the related accounts.
It is common for governments to pool the cash and investments of various
funds to improve investment performance. By pooling funds, the City can
benefit from economies of scale, diversification, liquidity, and ease of
administration. The City uses the services of an investment advisor, PFM
Asset Management, to manage a portion of the City’s portfolio. The City’s
strategy is to retain approximately 25% of the portfolio to manage its day-
to-day cash flow needs, while PFM’s focus is on longer-term investment
management. In addition, the City has retained direct control of several
investments that had been acquired before the City began to use
investment advisors. All investments are held by the City in a safekeeping
account with Bank of New York Mellon, except for investments held by
trustees related to bond financings, which are held by either US Bank or
Bank of New York Mellon.
Environmental, Social, and Governance (ESG) Investment Objectives
ESG investing is the process of incorporating the
analysis of non-financial environmental, social, and
governance factors into investment decisions alongside
traditional financial criteria. As set forth in the City’s
Investment Management Plan dated August 18, 2020, it
is the City’s objective to integrate environmental, social,
and governance (“ESG”) factors into investment
decisions for its investment portfolio to the extent
practical and possible.
In order to achieve this objective, the City will apply the
ESG Investment Criteria to the following Investments:
Asset-Backed Securities, Bankers’ Acceptances,
Commercial Paper, Corporate, Medium-Term and Bank
Notes, and Negotiable Bank Deposit Obligations .
The ESG investment criteria is based on ESG risk
ratings, industry and subindustry definitions, and
subindustry rankings as provided by Sustainalytics.
1. Market Value includes accrued interest as of March 31, 2022.
Source: Sustainalytics. Please see important disclosures at the end of this presentation.
ESG Performance SummaryQ2 2022
ESG Rated Portfolio
30/38 issuers with a MV of $100.6 million1
$43,227,448 (43%)
Green shades are ESG-rated sectors
55%
2%
22%
14%
5%2%
Sector Allocation
U.S. Treasury
Municipal
Federal Agency & MBS
Corporate Notes
Certificates of Deposit
ABS
0 20 40 60 80 100
Management
Exposure
ES
G
Ris
k
Rat
ing
Sustainalytics’ characterizations of ESG performance
Source: Sustainalytics. Data as of March 31, 2022, and December 31, 2021, as indicated. Please see important disclosures at the end of this
presentation.
ESG Quarter-Over-Quarter Summary Comparison ESG
Risk Rating
21.5
Negligible Low Medium High Severe
22.2
3/31/22 12/31/21
Exposure
Management
Low Medium High
Weak Average Strong
42.141.3
51.649.1
•On average, the portfolio
maintained medium ESG risk
as of March 31, 2022
•The portfolio’s ESG risk
exposure score remained
within the medium range. A
lower ESG exposure score
generally reduces ESG risk
•The portfolio’s ESG
management rating improved
during the quarter, moving into
the strong range. Higher
management scores generally
reduce ESG risk
0%
47%50%
3%0%0%
46%48%
6%0%
29.4 21.3 20.7 27.4 17.2 14.4 24.6 18.5 16.7 14.80
10
20
30
40
ESG Risk Rating by Industry
Portfolio holdings and Sustainalytics data as of March 31, 2022. “ESG Risk Rating by Industry” represents the market value -weighted average ESG risk
rating for each industry, as classified by Sustainalytics. “Industry Distribution” charts show the total number of issuers per industry and the allocation as
percentage of portfolio market value.
Industry Diversification
Average ESG Risk Rating = 21.5
Universe Average ESG Risk Rating by Industry
4 9 5 1 1 1 2 4 1 21
Industry Distribution
(# of Issuers)
5%61%10%6%
2%
1%
3%8%
1%
3%
(Allocation % of Market Value )
Source: Sustainalytics and the Investment Policy Statement as of March 31, 2022. Changes in approved list shown reflect issuers eligible for
purchase in the portfolio based on ESG criteria and IPS limitations but may not be held by the client.
Top Changes in ESG Risk Ratings in Q1
Largest Decreases in ESG Risk Rating
Federal Home Loan Bank System
Ally Financial Inc.
Federal National Mortgage Association
↓4.4
↓1.8
↓1.7
18.8
22.0
18.3
Largest Increases in ESG Risk Rating
Adobe Systems Inc
Skandinaviska Enskilda Banken AB
The Home Depot Inc
12.5
23.7
12.6
↑1.7
↑1.3
↑1.1
Exposure
Management
0.0
↑14.3
Exposure
Management
↓1.4
↑2.5
Exposure
Management
↑0.4
↑4.3
Exposure
Management
↑4.5
↑0.7
Exposure
Management
↑0.4
↓2.7
Exposure
Management
↑0.5
↓3.8
Holdings as of March 31, 2022 –Sorted By ESG Risk Rating
Source: Sustainalytics. Holdings as of March 31, 2022. Quarter-over-quarter (“QoQ”) change in ESG risk rating reflects the overall change in risk rating
for each issuer, as defined by Sustainalytics, from March 31, 2022, to December 31, 2021. Issuers with “-” under ESG contributions means data not
available.
Issuer % Weight Subindustry Subindustry
Percentile
ESG
Risk
Rating
3/31/22
QoQ
Change
in ESG
Rating
Contributions
E S G
CarMax Inc.0.8%Automotive Retail 11 12.0 --65%35%
Adobe Systems Inc 0.6%
Enterprise and
Infrastructure
Software
2 12.5 +1.7 6%45%38%
The Home Depot Inc 0.8%
Home
Improvement
Retail
14 12.6 +1.1 29%42%29%
Walt Disney Co 0.5%Movies and
Entertainment 16 14.4 --46%54%
Target Corp 0.7%Department Stores 7 14.8 -16%49%35%
DNB ASA 0.6%Diversified Banks 6 15.6 -5%45%50%
Intel Corp 0.6%
Semiconductor
Design and
Manufacturing
3 16.7 (0.5)32%28%40%
Deere & Co 0.7%Agricultural
Machinery 14 17.2 +0.3 25%53%22%
Mastercard
Incorporated 0.6%Data Processing 17 17.2 --41%52%
Federal National
Mortgage
Association
11.7%Thrifts and
Mortgages 14 18.3 (1.7)-60%40%
Federal Home Loan
Bank System 2.5%Consumer Finance 8 18.8 (4.4)-53%47%
Nordea Bank AB 1.1%Diversified Banks 16 20.6 -2%44%54%
Bank of New York
Mellon Corp 1.0%
Asset
Management and
Custody Services
11 21.5 (1.6)6%40%54%
Ally Financial Inc.0.1%Consumer Finance 20 22.0 (1.8)-59%41%
Bristol-Myers Squibb
Company 0.3%Biotechnology 5 22.5 +0.1 -68%32%
Holdings as of March 31, 2022 –Sorted By ESG Risk Rating
Source: Sustainalytics. Holdings as of March 31, 2022. Quarter-over-quarter (“QoQ”) change in ESG risk rating reflects the overall change in risk rating
for each issuer, as defined by Sustainalytics, from March 31, 2022, to December 31, 2021. Issuers with “-” under ESG contributions means data not
available.
Issuer % Weight Subindustry Subindustry
Percentile
ESG
Risk
Rating
3/31/22
QoQ
Change
in ESG
Rating
Contributions
E S G
Capital One
Financial
Corporation
0.1%Consumer Finance 23 22.6 (0.6)-61%39%
Federal Home Loan
Mortgage Corp 7.3%Thrifts and
Mortgages 27 23.2 (1.1)-58%42%
Skandinaviska
Enskilda Banken AB 1.2%Diversified Banks 24 23.7 +1.3 3%40%57%
Barclays PLC 1.0%Diversified Banks 29 24.3 (0.2)7%33%61%
Pfizer Inc 1.1%Pharmaceuticals 5 25.2 +1.0 5%53%36%
Federal Farm Credit
Banks Consolidated
Systemwide Bonds
0.8%Consumer Finance 46 25.7 ----
Sumitomo Mitsui
Financial Group Inc 0.6%Diversified Banks 32 25.7 -5%47%48%
Bank of America
Corporation 1.5%Diversified Banks 38 27.3 -5%43%52%
Walmart Inc.2.8%Food Retail 52 27.4 -15%60%24%
JPMorgan Chase &
Co.1.1%Diversified Banks 41 28.3 (1.1)4%46%50%
Toyota Motor
Corporation 1.2%Automobiles 45 28.9 (1.5)25%38%36%
Honda Motor Co Ltd 0.7%Automobiles 49 29.6 +0.3 27%42%31%
Amazon.com Inc 1.1%Online and Direct
Marketing Retail 92 30.2 +0.2 19%36%33%
Hyundai Motor
Company 0.0%Automobiles 67 31.3 +0.7 27%39%34%
Nissan Motor Co Ltd 0.2%Automobiles 72 31.6 (1.2)30%42%29%
Socially Responsible Investment Policy
In addition to the ESG criteria,
the City’s Socially Responsible
Investment (SRI) Policy
restricts from the portfolio
issuers who generate revenue
from casinos, gambling,
racetracks, brewery,
wine/spirits, tobacco,
electronic cigarette, or
tobacco-related products, or
who support the direct
production or drilling of fossil
fuels. The tables to the right
show the Bloomberg Industry
Classifications (“BICS”) for all
the portfolio’s holdings.
Issuer Sector (BICS)
Hyundai Auto Receivables Automobiles Manufacturing
Honda Auto Receivables Automobiles Manufacturing
Carmax Auto Owner Trust Automobiles Manufacturing
Capital One Prime Auto Rec Trust Automobiles Manufacturing
Ally Auto Receivables Trust Automobiles Manufacturing
Nissan Auto Receivables Automobiles Manufacturing
Toyota Motor Corp Automobiles Manufacturing
Nordea Bank Ab Banks
Sumitomo Mitsui Financial Group Inc Banks
Barclays Bank PLC Banks
Skandinaviska Enskilda Banken Ab Banks
Mastercard Inc Consumer Finance
JPMorgan Chase & Co Diversified Banks
Bank Of America Co Diversified Banks
San Diego Ca Cmnty Clg Dist Education
University Of California Education
Los Angeles Community College District CA Education
The Walt Disney Corporation Entertainment Content
The Bank Of New York Mellon Corporation Financial Services
Issuer Sector (BICS)
Dnb Asa Financial Services
California Earthquake Authority Financing & Development
California St General Government
Maryland St General Government
FHLB Government Agencies
FNMA Government Agencies
FFCB Government Agencies
FHLMC Government Agencies
Deere & Company Machinery Manufacturing
Target Corp Mass Merchants
Wal-Mart Stores Inc Mass Merchants
Bristol-Myers Squibb Co Pharmaceuticals
Pfizer Inc Pharmaceuticals
Home Depot Inc Retail -Consumer Discretionary
Amazon.Com Inc Retail -Consumer Discretionary
Intel Corporation Semiconductors
Adobe Inc Software & Services
United States Treasury Sovereigns
New Jersey Turnpike Authority Transportation
Source: Bloomberg. BICs is an industry classification system developed and utilized by Bloomberg that classifies securities based on business,
economic function, and other characteristics.
Distribution List
City Council
Erica A. Stewart
Mayor
Andy Pease
Council Member
Michelle Shoresman
Council Member
Carlyn Christianson
Council Member
Jan Marx
Council Member
Investment Oversight
Committee
Erica A. Stewart
Mayor
Anni Wang
Public Member
Derek Johnson
City Manager
Brigitte Elke
Director of Finance
Debbie Malicoat
Accounting Manager/Controller
Natalie Harnett
Principal Financial Analyst—Budget
Independent Auditor
Badawi & Associates
PFM Asset
Management LLC
Monique Spyke
Managing Director
Appendix
-ESG Themes Information
ESG Themes Glossary
ESG Theme Theme Description Key Indicators
Environment
Carbon Output &
Energy Use
Refers to a company’s management of risks
related to its energy efficiency and
greenhouse gas emissions in its operation
as well as its products and services in the
production phase and during the product
use phase
•Carbon intensity
•Renewable energy use
•Env. Mgt. System certification
•GHG reporting / risk management
•Hazardous products
•Sustainable products & services
Waste & Pollution
Evaluates the management of emissions
and releases from a company’s own
operations to air, water, and land, excluding
greenhouse gas emissions
•Emergency response program
•Solid waste management
•Effluent management
•Radioactive waste management
•Hazardous waste management
•Non-GHG air emissions programs
•Oil spill disclosure & performance
•Recycled material use
Resource Use &
Biodiversity
Analyzes how efficiently and effectively a
company uses its raw material inputs and
water in production. It also encompasses
how a company manages the impact of its
operations on land, ecosystems, and wildlife
•Biodiversity programs
•Deforestation programs / polices
•Site closure & rehabilitation
•Water intensity & risk management
•Forest certifications
•Supplier environmental programs / certifications
•Sustainable agriculture programs
Community
Impact
(Environmental)
Evaluates the community impact from an
environmental risk perspective based on an
assessment of Community Relations,
Products & Services, Occupational Health
and Safety, and Product Governance
•Env Impact –Community Relations
•Env Impact –Products & Services
•Env Impact –Occupational Health and Safety
•Env Impact –Product Governance
ESG Theme Theme Description Key Indicators
Social
Human Capital
Management
Evaluates the management of risks
related to human rights, labor rights,
equality, talent development,
employee retention, and labor health
and safety
•Discrimination policy
•Diversity programs
•Gender pay equality / disclosures
•Employee development
•Supply chain management / standards
•Human rights policies & programs
•Employee health & safety
Product
Governance
Focuses on the management of
risks related to product quality,
safety, wellness, and nutrition, as
well as customer data privacy &
cybersecurity
•Product & service safety programs /
certifications
•Data privacy management
•Media & advertising ethics policy
•Organic products / GMO policy
•Product health statement
Community
Impact (Social)
Assesses how companies engage
with local communities and their
management of access to essential
products or services to
disadvantaged communities or
groups
•Equitable pricing and availability
•Access to health care
•Price transparency
•Human rights / indigenous policy
•Community involvement programs
•Noise management
ESG Financial Integration
& Resilience*
Analyzes financial stability and
issues that pose systemic risks and
potential external costs to society in
the financial services industry. Also
measures ESG activities by financial
institutions
•Systemic risk management / reporting
•Tier 1 capital
•Leverage ratio
•Responsible investment / asset management
•Underwriting standards
•Financial inclusion
•Credit & loan standards
•Green buildings investments
ESG Themes Glossary
ESG Themes Glossary
ESG Theme Theme Description Key Indicators
Governance Corporate
Governance
Evaluates a company’s rules, policies, and
practices with a focus on how a company's
board of directors manages and oversees
the operations of a company. Also assesses
the management of general professional
ethics and lobbying activities
•Board/management quality & integrity
•Board structure
•Ownership & shareholder rights
•Remuneration
•Audit & financial reporting
•Stakeholder governance
•Bribery & corruption policies / programs
•Money laundering policy
•Whistleblower programs
•Business ethics programs
•Political involvement policy
•Lobbying and political expenses
Disclosures
This material is based on information obtained from sources generally believed to be reliable and available to the public, however
PFM Asset Management LLC cannot guarantee its accuracy, completeness or suitability. This material is for general information
purposes only and is not intended to provide specific advice or a specific recommendation.All statements as to what will or may
happen under certain circumstances are based on assumptions, some but not all of which are noted in the presentation.
Assumptions may or may not be proven correct as actual events occur, and results may depend on events outside of your or our
control. Changes in assumptions may have a material effect on results. Past performance does not necessarily reflect and is not
a guaranty of future results. The information contained in this presentation is not an offer to purchase or sell any securities.
There is no guarantee the investment objectives will be achieved as the investment portfolio will only include holdings consi stent
with the applicable Environmental, Social, and Governance (ESG) guidelines. As a result, the universe of investments availab le
will be more limited. ESG criteria risk is the risk that because the investment portfolio ESG criteria excludes securities of certain
issuers for nonfinancial reasons, the investment portfolio may forgo some market opportunities that would be available to
investment portfolios that do not apply ESG criteria.
PFM Asset Management LLC ("PFMAM") is an investment adviser registered with the U.S. Securities and Exchange Commission
and a subsidiary of U.S. Bancorp Asset Management, Inc. ("USBAM"). USBAM is a subsidiary of U.S. Bank National Association
("U.S. Bank"). U.S. Bank is a separate entity and subsidiary of U.S. Bancorp. U.S. Bank is not responsible for and does not
guarantee the products, services or performance of PFMAM. The information contained is not an offer to purchase or sell any
securities. Additional applicable regulatory information is available upon request.
For more information regarding PFMAM's services or entities, please visit www.pfmam.com.
PFM Asset Management LLC
NOT FDIC INSURED : NO BANK GUARANTEE : MAY LOSE VALUE
pfmam.com
1Q22 Quarterly
Market Update
City of San Luis Obispo
415.393.7270
May 12, 2022
Monique Spyke, Managing Director
▸Invasion of Ukraine impacted the economic landscape
▹Commodity prices soared, especially energy
▹Created significant geopolitical uncertainty
▹Triggered market volatility
▸The U.S. economy is characterized by:
▹A strong labor market
▹Inflation at a 40-year high
▹Depressed consumer confidence
▸The Federal Reserve is tightening monetary policy
▹Initiated the first of what will be many rate hikes in 2022
▹Balance sheet reduction likely to start soon
▸U.S. Treasury yield curve has partially inverted
▹Yield on 2-year Treasury notes rose above the 10-year Treasury
▹One early, but imperfect warning sign for a future recession
Current Market Themes
1
Economic Conditions Are Mixed
2Source: Bloomberg, as of 3/31/2022.
Shading is based of economic data from 2/28/2012 –2/28/2022.
WorstBest
Prices
1/20
2/20
3/20
4/20
5/20
6/20
7/20
8/20
9/20
10/20
11/20
12/20
1/21
2/21
3/21
4/21
5/21
6/21
7/21
8/21
9/21
10/21
11/21
12/21
1/22
2/22
CPI YoY
Confidence
U. Of Mich. Sentiment
Manufacturing
ISM Manufacturing
Labor
Unemployment Rate
Retail
Retail Sales MoM
Housing
Existing Home Sales
New Home Sales
Russia’s Invasion of Ukraine Impacts Global
Commodity Markets, But Has Limited Impact on U.S.
Economy
3Source: Observatory of Economic Complexity (OEC); as of March 2022.
Data is based on 2020 exports.
Global Production Share
of Top 5 Exports
Crude Petroleum11%
Refined Petroleum 10%
Petroleum Gas 9%
Gold 4%
Coal Briquettes 15%
Top 5 Trading Partners
China 15%
United Kingdom 8%
Netherlands 7%
Belarus 5%
Germany 4%
Global Production Share
of Top 5 Exports
Seed Oils39%
Corn 12%
Wheat 9%
Iron Ore 3%
Semi-Finished Iron 12%
Top 5 Trading Partners
China 14%
Poland 6%
Russia 6%
Turkey 5%
Egypt 4%
Russia (12th largest)Ukraine (58th largest)
$4
$6
$8
$10
$12
$14
$16
$18
2018 2019 2020 2021 2022
Soybean (per bushel)
Invasion Has Put Additional Pressure on Supply
Chains and Commodity Prices
Source: Bloomberg, as of 3/31/2022.
$0
$20
$40
$60
$80
$100
$120
2018 2019 2020 2021 2022
WTI Crude Oil (per barrel)
$2
$4
$6
$8
$10
$12
$14
$16
2018 2019 2020 2021 2022
Wheat (per bushel)
4
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
2018 2019 2020 2021 2022
Retail Gasoline (per gallon)
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
$5.50
2018 2019 2020 2021 2022
Copper (per lb.)
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
2018 2019 2020 2021 2022
Aluminum (per metric ton)
Energy Agriculture Industrial Metals
YTD: +33%
YTD: +29%
YTD: +31%YTD: +7%
YTD: +22%YTD: +24%
Inflation Is Prevalent Throughout the Economy
5Source: BLS.gov, data as of February 2022.
CPI Categories
◼Commodities
◼Services
◼Energy
◼Food
Majority of components are
above the Fed’s 2% average
CPI target
2% Fed Inflation
Target
Index Weighting
Size of bubbles
represent contribution
to headline CPI
Food
Gasoline and
Fuel Oil
Energy Services
New Vehicles
Used Cars
and Trucks
Apparel,
Medical Care,
Alcohol, and
Others
ShelterMedical Care,
Transportation
and Others0%
10%
20%
30%
40%
50%
0%5%10%15%20%25%30%35%40%Year-over-Year InflationCPI Components
2.6%
5.4%5.4%
7.0%
7.9%1
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
Dec-20 Mar-21 Jun-21 Sep-21 Dec-21 Mar-22
Consumer Price Index
% Change YoY
Federal Reserve Policy Has Lagged Surging
Inflation
6Source: Bloomberg, data as of 4/1/2022.
1.March’s CPI is assumed to remain unchanged from February’s CPI reading of 7.9%; Treasury yields are as of month-end.
2.Calculated using the 2022 median Federal Funds rate from the FOMC Summary of Economic Projections. Assumes 0.25% rate hikes.
3.Quotes are sourced directly from FOMC press release statements.
Mar 2021
6.0%
0.16%
0
Jun 2021
5.9%
0.25%
0
Sept 2021
4.7%
0.28%
0
Dec 2021
3.9%
0.73%
3
Mar 2022
3.6%
2.34%
7
Indicators
Unemployment Rate
2-Year Treasury Yield1
Fed Projections
# of 2022 Rate Hikes2
“…the Committee will aim
to achieve inflation
moderately above 2
percent for some time…” 3
“Inflation is elevated,
largely reflecting
transitory factors.”
“Inflation remains elevated, reflecting
supply and demand imbalances…
higher energy prices, and broader
price pressures.”
0.48%
2.33%
2.46%
2.34%2.45%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3
M
1
Y
2
Y
3
Y
4
Y
5
Y
10
Y
30
Y
Maturity
U.S. Treasury Yield Curve
March 31, 2022
December 31, 2021
Treasury Yield Curve Partially Inverted; Sharp
Rise in Yields Has Negatively Impacted Returns
Source: Bloomberg, as of 3/31/2022.7
-0.80%
-2.34%
-3.16%
-4.02%
-5.00%
-4.00%
-3.00%
-2.00%
-1.00%
0.00%
1.00%1 Year1 - 3 Year1 - 5 Year1 - 10 YearU.S. Treasury Returns –Q1 2022
Rising yields in Q1
negatively affected
bond returns
0
10
20
30
40
50
60
-4%-3%-2%-1%0%1%2%3%4%5%6%7%8%9%10%11%12%13%FrequencyDistribution of Quarterly Returns
(3/31/78 -3/31/22)
Worst Performance in Over 40 Years
8Source: ICE BofAML Indices, data as of 3/31/2022.
2022 Q1
Return
-3.16%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%Mar-78Mar-89Mar-00Mar-11Mar-22Quarterly Performance
(3/31/78 -3/31/22)
Median 1.09%
ICE BofA 1-5 Year Treasury Index
Sector Yield Spreads Widened in Q1 2022
Source: ICE BofAML 1-to 5 year-indices via Bloomberg, MarketAxess, and PFMAM as of 3/31/2022. Spreads on ABS and MBS are option-adjusted
spreads of 0-to 5-year indices based on weighted average life; spreads on agencies are relative to comparable maturity Treasuries. CMBS is
Commercial Mortgage-Backed Securities.
-0.10%
-0.05%
0.00%
0.05%
0.10%
0.15%
0.20%
Dec-20 Mar-21 Jun-21 Sep-21 Dec-21 Mar-22
Federal Agency Yield Spreads
0.2%
0.3%
0.4%
0.5%
0.6%
0.7%
0.8%
0.9%
1.0%
Dec-20 Mar-21 Jun-21 Sep-21 Dec-21 Mar-22
Corporate Notes A-AAA Yield Spreads
-0.50%
0.00%
0.50%
1.00%
1.50%
Dec-20 Mar-21 Jun-21 Sep-21 Dec-21 Mar-22
Mortgage-Backed Securities Yield Spreads
Agency MBS AAA CMBS Index
0.2%
0.3%
0.4%
0.5%
0.6%
0.7%
0.8%
0.9%
1.0%
Dec-20 Mar-21 Jun-21 Sep-21 Dec-21 Mar-22
Asset-Backed Securities AAA Yield Spreads
9
Rising Rates and Wider Spreads Hurt Fixed-
Income Returns in Q1 2022
Source: ICE BofAML Indices. ABS indices are 0-5 year, based on weighted average life. As of 3/31/2022.
-3.16%-3.08%
-1.81%
-3.62%
-4.80%
-7.0%
-6.0%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%U.S. TreasuryAgencyABSCorp A-AAACorp BBBQ1 2022
1-5 Year Indices
10
1.04%1.01%
1.35%
2.10%
2.71%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%U.S. TreasuryAgencyABSCorp A-AAACorp BBB10 Year Average
Fixed-Income Sector Commentary –1Q 2022
11
▸U.S. Treasury securities generated negative
performance as the market repriced for an aggressive
Fed rate hike cycle, pushing yields higher across all
maturities. By quarter-end, 2-year Treasury yields
rose to 2.34%, the highest level since April 2019.
▸Federal agency sector remained unattractive given
the historically tight yield spreads and minimal pickup
vs. Treasuries. While volatility pushed spreads wider
on callable structures, the rising rate environment was
not favorable for taking on increased optionality risk.
▸Supranational spreads remained tight, and supply
was limited as issuance lagged projections. New
issue opportunities, while sporadic, remained the best
entry point.
▸Corporate credit spreads widened through the
quarter, driven by rising global tensions and a less
certain macro-economic environment. Yield spreads
reached the widest levels since 2019 despite stable to
strong fundamentals.
▸Asset-Backed AAA-rated auto and credit card yield
spreads increased toward 18-month wides. ABS
offered relative value compared to corporates as
spreads between the two widened during the quarter.
▸Mortgage-Backed Securities continued to
underperform. Prepayments experienced a material
slowdown as rates rose, which lengthened durations
and compounded the negative impact. The Federal
Reserve is poised to begin reducing their MBS
holdings, so weakness in the sector could persist.
CMBS valuations remained below historical averages
relative to Treasuries as spreads remained tight.
▸Taxable Municipal securities deals remain heavily
oversubscribed. Valuations remained stretched which
warrants some selectively in the sector.
▸Commercial Paper and CDs saw significant
repricing to higher yields, especially on maturities
greater than six months as issuers sought longer-term
funding in response to Fed rate hike expectations.
Disclaimer
Investment advisory services are provided by PFM Asset Management LLC (“PFMAM”), an investment
adviser registered with the U.S. Securities and Exchange Commission and a subsidiary of U.S. Bancorp
Asset Management, Inc. (“USBAM”).USBAM is a subsidiary of U.S. Bank National Association (“U.S.
Bank”).U.S. Bank is a separate entity and subsidiary of U.S. Bancorp. U.S. Bank is not responsible for
and does not guarantee the products, services or performance of PFMAM.The information contained is
not an offer to purchase or sell any securities. Additional applicable regulatory information is available
upon request.
For more information regarding PFMAM’s services please visit www.pfmam.com.
Disclaimer
12