(11:45 a.m. Time Certain) Semi-Annual Investment Portfolio

1:54:23All right. So we'll continue to this afternoon. We're going to item uh uh it's R forty two forty two. R forty two.

1:54:32Uh Mr. Chair, Chairman R forty two is the semi-annual investment portfolio presentation and market update. At the podium, we have Scott Stitcher, Director with PFM Asset Management. He's going to go over the market update as well as the portfolio that PFM manages for the county. And also with him is Matt Lazar. He is the finance director with my office. Mr. Lazar is going to go over the portfolio that um he and his um his department manage for the county. Thank you.

1:55:02Thank you. Good morning, Mr. Chairman, Commissioners, Madam Clerk, thank you for the introduction. Um let me see if I can get my our our presentation up here. Yeah, here we go.

1:55:17So as Madam Clerk uh mentioned, I'm gonna provide a little backdrop on what occurred during the quarter and and sort of paint the picture for maybe what to expect in the coming year. Uh before we get into looking at some of the specifics of your assets and the and the portfolio that we are responsible for. So they were calling for a slowdown during the quarter, they being the economists were calling for a slowdown during the fourth quarter. And if you call uh Uh

1:55:48uh a GDP reading of three point three percent. Then I'll I'll say we got that slowdown. Um f third quarter came in at four point nine percent. fourth quarter at three point three percent. For the full year growth came in at 3.1 percent. Again, economists were calling for point two percent for the full year. They were calling for a recession and we definitely avoided a recession. It was a great year for the economy as a whole. Now inflation continues

1:56:18to rear its head. We are seeing it starting to cool. Uh but during the quarter it cooled slower than expected. We got a CPI reading last week, came in a little higher than expected at uh 3.1 percent. The expectations were for two point nine percent reading. Uh PCE, which is uh personal consumptions expenditure, is the preferred gauge for the Fed. It remains elevated as well at 2.6 percent. the core reading at 2.9

1:56:49percent. More recently, though, that number looks much better. It's now hovering, if you annualize the last two quarter quarterly readings, hovering around two percent, which is again the Fed's target for inflation. So we're we're getting there. We're starting to see some cooling. However, I mentioned growth being quite strong during the quarter and for the full year, and that's because the the employee із континус то аб. Uh If you look at the unemployment rate,

1:57:19it stands at 3.7%. It's been below 4% for two years running now. Uh two Fridays ago we got new growth, new job growth at 353,000 for the the month of December, which was double expectations. If you look at the job openings to unemployed ratio, that currently stands at 1.4 times. So that means there's about 1.4 jobs for every individual that's looking. So that is down from mid-22 when it stood at

1:57:49two times, so two jobs for every person looking. The Fed wants to see that number at one. One times. So with Strong jobs growth and reacceleration of earnings It it's enough to kind of give the Fed a reason to pause right now from a s the standpoint of reducing rates, which is kind of what the market is now pricing in, is the next move will be the Fed will reduce interest rates.

1:58:20The market had priced in a move in March and in May. the Chair J. Powell was pretty clear that he's they're not planning to cut rates in May. And that expectation has now been kind of pushed out to June. So the Fed there is a a disconnect between the market and the Fed. The Fed is saying three rate cuts in 24, the market still thinks four to five. So there's a saying out there that you don't fight the Fed. And so time will tell uh how many rate cuts we get this

1:58:50year, but it looks like it will be some time before we get that first rate cut. Now Uh during the quarter. Interest rates did fall dramatically. Anywhere from seventy to eighty basis points during uh along the the the uh treasury yield curve. And you can see that reflected in the dotted line, which was the end of the third quarter versus the blue solid line. uh which is the end of the fourth quarter. And that's a good thing for long-term investors such as yourself from a price

1:59:20appreciation standpoint. As bond or yields go down, bond prices go up. There's that inverse relationship. So that that's a good thing. Um Let me stop there. And just see if there are any questions about the economy or the expectations here for twenty twenty four before I hand it over. to Matt to go into some of the details of The overall assets.

1:59:47Any questions from the board?

1:59:51I don't see any. Okay.

1:59:52Thank you.

1:59:53All

1:59:53right. Well again Matthew Lazar, finance director for the clerk's office. So um when Scott said don't fight the Fed, that reminded me of it and my mom used to say you also don't fight the women in your life. So Thank you, Scott, for childhood memories. Um But kind of going through the portfolio what you're seeing right now this item goes in conjunction with what you also are gonna see in your board packet, which is the quarterly performance for the county's portfolio. So at this time or as of December thirty-first, the

2:00:23county had an investment portfolio of about two billion dollars. 1.5 was deemed unrestricted, and what that means it's not tied directly to a debt service or a bond issuance. So that is what you're seeing on this slide. And really what we're trying to show here is with what Scott has been saying, we are trying to be as agile and diverse in our investment portfolio as possible. We want to be able to react. to the changing market. At the same time we want to be proactive. So you'll see anything ranging

2:00:54in maturity from 25 days to just under two years. That allows us to make those moves And stay in compliance with the investment policy. I think what you're really seeing though on here is how much the county has grown in the 10 plus years. I think if we would have had this conversation ten years ago, you would have seen the the breakdown you're seeing in the top left would have been Florida Trust and maybe with sprinkled with a few CDs, but the change in the investment policy has really allowed uh for the county to to take advantage of the market. In

2:01:24different avenues. So you can see we have certificate deposits with some of the local banks, as well as kind of just you know branching out to obviously PFM and a lot of the different local government investment pools. On here, again, to correlate it to your packet, the of the items you received for the period ending December 31st, the county has seen about $6.5 million in return on investment. investment um which it I think we obviously you can extrapolate that out for the year, but we are getting in line

2:01:54with how it was pre-COVID, uh which I think is a very important thing to keep in mind, especially uh as you guys go through budget season and you guys are talking about capital project that really does kinda come into play. Um on this item there. So uh going over to the next slide, this is the sector analysis. Could

2:02:13you go back to that slide? Mm-hmm. So when I look at the Mogan Stanley, you got like twenty five million And it's NA and J P. Morgan Chase N A. As far as expected yields or or monthly average yield. Wha why is that?

2:02:28So when we were looking at those, those are with our so we bank with JP Morgan and those are just liquid funds that we have invested. So that it's very minimal return. It's more of a safekeeping. So if we have a large expenditure that is coming up, we can easily move funds between we are currently looking into moving that into a different investment avenue to see if we can get a better return. But the original thought process behind in there was just to make sure to keep it with a local banking institution that allows us to make expenditures on on a timely basis.

2:03:01Yep, and that's what we're we're considering now, especially with a lot of the short term. It's there's we have a lot of funds. There's not as many investment av local investment avenues that can handle that large amount of funds. So it's finding a place to safely put those large amounts. So we've been in conversations a lot of different investment avenues kind of reaching out to us, especially as you guys get more bond issues. Uh we get a phone call every week about kind of root branching out. So we are looking at

2:03:27I mean even if you had to divide up divide it up to more accounts to get that security, that's what you needed, but there's gotta be some type of return there somewhere.

2:03:34I just I was just going to add that to to your point that these investments are really overnight. It's a liquidity tool and th those data points really don't exist for that type of of investment and that's why you don't see it on on the page. But to your point, it is you're earning a yield. It's just not a yield to maturity. or or an a weighted average

2:03:57daily bal balance in those accounts?

2:03:59So it's it's around what you're seeing in there, the twenty-five it w we try not to exceed the twenty-five million dollars, that is the buffer to make sure that we are able to

2:04:07but the money comes in and out you get a twenty-five million dollar balance. There's two of them.

2:04:12I know. That's what I'm saying. Both of them. There's maybe even three of them.

2:04:16So and that is why we we are looking into making those changes. Uh the again this is uh when we move the money it's the ability when we m work with these local government investment pools, we have to give advanced notice sometimes forty-eight hours, seventy-two hours in advance to pull down money. This gives us the ability to if a large expenditure is coming through for c a project or anything, it could be payroll, we're able to quickly make that change. Set that uh standard with the other local government investment pools to make sure that if we were putting in their market we have

2:04:46the ability of those funds, we don't have to wait seventy two hours so they can plan accordingly so we can so we have those available. But that these are the two items we're looking at now uh to make changes with. So okay.

2:05:02Alrighty, so in here, this is the taking the investment policy and the different limitations that are set in that investment policy and kind of just showing it in graph form. So the gray outline is the limitations per the investment policy. The shaded in blue area, that is the current investment as of December 31. So really we're gonna go straight down to the bottom there of the Florida Prime to point out that. That was 0.1% over what was allowable per the investment policy. Um normally, uh,

2:05:32that is well below that. But the reasoning behind that, in December, a large increase in tax revenue came in, which had the large impact in there. Obviously, it was only 0.1%. But again, we've come up with some uh checks and balances within finance to make sure we don't have that occur again. But that is is what attributed to that there was a large increase for tax revenues in December. So That is all I have. Any other questions? For me.

2:05:59No we're gonna have one for the administrator in a second. Are you done?

2:06:04I'm done, but he's he's got some more food.

2:06:06Okay.

2:06:06Okay. I'll wait. Okay.

2:06:09I'm gonna fast forward here to uh the portfolio that we are responsible for. So Matt focused a lot on you know liquidity. Uh and you'll recall that this is operating money. It's governed by state statute 218.415. The main two objectives of that statute is safety, liquidity. However, it does allow you to earn some yield and earn a competitive return as well. And that's what we manage uh the portfolio for, is to to earn a little bit of extra return on the county.

2:06:41So that's what we're looking at here. Uh this is a summary of the portfolio we we manage. You'll note that we ended the year and the quarter at $395,117,000. The duration, which I've talked about before, which is the interest rate sensitivity of your portfolio, stands at about 1.71 years versus the benchmark at 1.75 years. The last time I was here, we were maintaining duration short of the benchmark to the tune of about 95 to

2:07:1197 percent. We've lengthened that a bit in this rate environment to the 97 to 100% range. And you're likely going to see us maintain that level as long as it looks as though the next move by the Fed will be lower. So we're comfortable taking on a little more interest rate risk in your portfolio. The number I want to stop on though before we get to performance is the yield at cost in your portfolio. And you've heard me talk about this at previous meetings. Last time I was here, the yield at cost

2:07:41in your portfolio was about uh 2.88 percent. Uh you can see at the end of the fourth quarter it stands at 3.81% and into early February it's now uh at four percent. Why is this important? Well you're locking in income at higher yields. That means higher interest for longer. So when interest rates do fall, this portfolio is going to reset much slower than a money market fund, a local government investment pool or bank

2:08:12account. So this is again a long-term portfolio to lock in income for longer. And you can see that the yield at cost is starting to move towards the yield at market. So your patience in the letting the market come to you after this cycle of uh rising rates is is starting to be rewarded. Uh you'll note uh a highly diversified portfolio in the upper right. Uh high credit quality and the lower left S P credit quality double A for the overall portfolio. And then we show you

2:08:42the duration distribution in that lower right. How do we get to the 1.71? The blue bars uh will show you how we get to that number. And I'll note that we are overweight in that zero to one year. time frame, which I'll call dry powder. That is uh securities that will mature in the near future. that can be reinvested at higher yields.

2:09:04Interesting.

2:09:06quickly at returns. That's what you're really most interested in seeing. And I mentioned earlier we had falling interest rates during the quarter, and that equates to really strong returns for the fourth quarter as well as the trailing 12 months, the one-year figure. We give you Total return in uh percentages in the bottom and in the middle, we give you total return in dollars. Uh you'll note the portfolio was up 2.65% for the four fourth quarter

2:09:36versus the bench benchmarket at 249. And after fees at 264. So about fifteen basis points of outperformance during the quarter. What we're most proud of is the trailing 12 months, up almost 5% for the year, versus the bench at 428, and then after fees of 492. So about 64 basis points of outperformance on a net of fee basis, 68 basis points gross of fees. I'd be remiss if I didn't point you to the

2:10:06dollar returns. Uh about eighteen point six million in total dollar returns for the year. That's what the five percent equates to. for the quarter about ten point one million. I want to focus on that three month Interest earn number three point four million. And if you extrapolate that out. Over the next year, that figure is roughly 13.6 million. I think that's a conservative figure for income. over the coming year in this portfolio alone. Compared

2:10:37to last year at 10.7 million. So it's almost three million more is I think again a conservative estimate of what to expect in income over the next twelve months. Why am I focusing on that number? Income acts as an insurance policy in your portfolio. So i it it guards against any price fluctuations that may occur. Income is typically the largest component of total return. So as that number increases, your total return should continue to. To

2:11:07excel, and any volatility in the marketplace should be buffered by the income in the portfolio. So it's been a long time coming. Uh it's kind of fun to do these uh presentations once again. Uh it was a really good quarter and really good year. So let me stop there and just see if there are any questions.

2:11:26Well I have a question for the county administrator. Ms. Darkey. How do we reflect uh these when we go to do our budget this money?

2:11:33Glad you asked. So uh we have um first off this is all pooled cash, right? So this is uh from various funds across funds. So your enterprise funds, for example, are are part of this pooled cash, right? So your solid waste, utilities across all that. We do revenue projections uh just like we do for the taxing vehicles. We have projections on what interest income is, and that is actually baked into all of the models and so it is baked in as a top line revenue number uh for departments and areas that are drawing out a

2:12:03fund. So in short, it's accounted for. Um you know, we always go back and we'll we'll we'll back check things as as you know um reality sets in, right? So we we do a projection, but then we cross check how those projections did with reality.

2:12:17Well in in my future Budget hearings. I'd like to see you know this called out in e whatever fund it is. Just a little more transparency. Mr. Chairman Mariano. Okay. Mr. Mayorana.

2:12:31Mike, what about tourist development revenues? Um With their reserves. Is this part of the mix with that? Are we actively working to let's say help tourist development create re revenue

2:12:42for their own uh So I I mean like I said it's a it's across all funds. So I would imagine that was be part of the pooled cash and I there is interest income that that comes in across all funds. So I think the answer is yes, but let me go back and validate that for you.

2:12:57So with I mean and this is probably different with other funds too, when you get that extra f revenue that comes in. Do you proportionally break it out to each department to put the money back into those? It's proportioned by the pool cash,

2:13:08yes, sir. So if utilities for or solid waste, for example, is fifty percent of that, then that interest income goes back in terms of the uh you know proportionate as to what they had invested. Does that make sense? It's proportional. Okay, good. Thank you.

2:13:23Mm Mr. Chairman I just wanted to echo um Mr. Karbala. He's he's he is correct um with what he's what is what he said. Yeah.

2:13:32I think you guys are doing a great job. Thank you. Thank you.

2:13:35Appreciate it. Thank you. Thank

2:13:37you. Thank you very much.