Public Trust Advisors Blog

Top Economic Drivers of Increased Yield in 2017

Posted on Fri, Feb 23, 2018

We are two months into 2018 and experiencing steady growth from the prior year. Let’s look at the economic factors that impacted yields and recap a successful 2017. 

1. Three Federal Open Market Committee (FOMC) Rate Hikes

The Federal Funds target rate was raised three times (March, June, and December), starting the year at 0.50% to 0.75% and ending at 1.25% to 1.50%. The FOMC’s December dot plot indicated three potential rate hikes for 2018 based on the strength of the labor market and optimism that inflation will rise over the medium term.

2. Over Two Million Jobs Added in 2017

The unemployment rate dipped from 4.8% to 4.1% over the course of 2017. Non-farm payrolls added just over two million jobs in 2017, falling short of 2016’s growth but proving to be more than enough to put downward pressure on the unemployment rate and further tighten the labor market.

3. Stronger Economic Growth

The U.S. economy grew approximately 2.5% percent in 2017. Optimism regarding synchronized global growth and the impact of the Tax Cuts & Jobs Act have the markets optimistic that the U.S. economy can continue to grow at a healthy pace in 2018.

4. Positive Consumer Sentiment

Strength in the housing market, a tightening labor market, and record high stock prices have lifted consumer sentiment. With roughly two-thirds of the GDP derived from consumer spending, a healthy consumer has led to a healthy economy.

5. Low Market Volatility

With the FOMC striving for maximum transparency, the stock and bond markets remained remarkably calm over the course of 2017. Stability in the financial markets have made the FOMC’s job a bit easier (for now).

 


All comments and discussion presented are purely based on opinion and assumptions, not fact. These assumptions may or may not be correct based on foreseen and unforeseen events. The information above is not a recommendation to buy, sell, implement, or change any securities or investment strategy, function, or process. Any financial and/or investment decision should be made only after considerable research, consideration, and involvement with an experienced professional engaged for the specific purpose. Past performance is not an indication of future performance. Any financial and/or investment decision may incur losses. Performance comparisons will be affected by changes in interest rates. Investment returns fluctuate due to changes in market conditions.

Tags: Rising rates, Managing Public Funds, LGIP, Public Trust Advisors, FOMC, Short-term interest rates

An Insider's Perspective on Public Trust Advisors, LLC

Posted on Wed, Sep 13, 2017

We are pleased to feature a Q&A interview by Emmie Madison, Content Writer for Public Trust Advisors, LLC (Public Trust), with Portfolio Managers Neil Waud and Randy Palomba. We discussed their experience, the economic landscape, and managing local government funds.

Neil Randy Blog.pngQ: How long have you been with Public Trust, and overall how long have you been managing portfolios?

Neil Waud: I have been with Public Trust since the very beginning, and I have been investing cash since 2000.

Randy Palomba: I’m also fortunate enough to have been with Public Trust since inception, and I’ve been investing cash in the public sector for over 30 years now. Time flies!

Q: You’ve been working together for a while now, right? How long? What’s the team like?

Neil: Randy and I have worked together since July of 1995. For the past twenty plus years, Randy has been a mentor for me, always willing to share his thoughts and observations while helping me hone my craft. As the Public Trust team continues to grow, Randy’s guidance has fostered a culture that shares institutional knowledge while encouraging new ideas. By design, our trading desk is a lively environment where the team openly debates our investment strategy as we discuss the prudent management of our clients’ investable funds.

Randy: Neil and I have been working together for over twenty years if I remember correctly. We both started in Client Service roles and progressed to Portfolio Managers. We have a solid team that allows us to share ideas and execute trades that are the best ones for the clients we serve.

Q: You both are CFA® charterholders, so what does that mean?  Who else on your team is a current CFA® charterholder?

Neil: The Chartered Financial Analyst (CFA) credential is offered to investment professionals through the CFA Institute. To earn the CFA credential, candidates must demonstrate a firm grasp of portfolio management, various investment tools, and the ethical standards required as a professional. To become a CFA charterholder, you must pass three levels of exams that rigorously test your investment related knowledge. Once earned, you are encouraged to continue your professional development while holding yourself to the highest ethical standards.Neil Quote Blog.png

Randy: To build on what Neil said, Public Trust encourages everyone on the team to go through the program. We have three members of the team that have completed the requirements for CFA designation and have an additional four members of the team currently enrolled in the program working toward their designation.

Q: What is your overall strategy on investing on behalf of governmental entities?

Neil: The safety of public funds is always the primary objective when developing our investment strategy. An emphasis on high quality securities, diversification, and the minimization of volatility helps ensure our clients’ portfolios maintain an appropriate balance of safety and liquidity throughout market cycles.

Randy: Safety! Safety of principal and liquidity of funds. These are taxpayer dollars we are investing. It is extremely important to ensure these funds are invested safely and in compliance with governing legislation as well as the clients’ investment policies.

Q: Do you have anything you want Public Trust clients to know about how their investments are being managed?

Neil: Prudent investment management mandates a thorough credit analysis of the counterparties we lend to and strict adherence to our clients’ liquidity needs. Having met these requirements, we then focus on maximizing investment returns. While we work in a competitive landscape, at the end of the day we need to be mindful of the old axiom: “it is the return of your principal not the return on your principal that matters most to our Participants.”

Randy: I’m proud of the team we have assembled and the comradery we have in doing the best job we can for our clients. It’s a real team effort with everyone working together to produce a superior product for our clients.

Q: We’ve seen some changes in the market this past year. What is your take on the current market?

Neil: Since the November election, we have seen a shift in market sentiment. The initial optimism of deregulation, tax reform, and fiscal stimulus in Washington driving growth and inflation metrics higher has given way to the reality of a polarized political process that will take some time to unravel. For the past eight years, the U.S. economy has experienced relatively steady but unspectacular growth. While sufficient enough to tighten the labor market to pre-crisis levels, the growth has not translated into rising inflation. While the stock market continues to press towards new highs, inflation will likely need to rise for interest rates to push higher.

Randy: I’m happy to see the Federal Reserve begin to raise interest rates. I’m not convinced that the Fed will be as aggressive as its dot plot suggests. I’ve been doing this long enough to see interest rates go from double digits in the 1980s to practically zero for most of the last ten years. I hope we can see interest rates at levels that make sense for the earnings to once again become a budget item for local governments. The earnings on excess cash can be important to providing additional resources for governmental entities ultimately benefiting the taxpayers.


Q: So, what are your expectations for the next Federal Open Market Committee (FOMC) meeting in September?

Neil: The July FOMC meeting didn’t really tip its hand regarding another rate hike this year simply noting that inflation was still below its 2% target rate. However, the post-meeting statement did say the normalization of its balance sheet will begin “relatively” soon. I agree with most, interpreting this to mean that the Fed’s longer-term holdings will be addressed at the September meeting. As far as the next rate hike is concerned, inflation will likely need to rise for this to occur this year. If it happens at all, the December meeting makes the most sense at this point.

Randy: I believe the FOMC will announce the start of the balance sheet normalization process. I also think that it will keep the Fed funds target rate unchanged until we see some indication that inflation is heading back toward 2%. The FOMC has accomplished one objective by raising rates from the nearly zero level we experienced for several years. I’m not convinced the U.S. economy is ready for a two-year Treasury yielding 5%. However, I know that finance managers and savers would welcome that investment return.

Q: Anything else you’d like Public Trust clients to know?

Neil: I would like to thank everyone for their continued support of Public Trust and encourage Participants to reach out to the Portfolio Management Team with any questions you may have regarding the program. Having placed your trust in us, we want to always be available for you.

Randy: I have had a great career working with some very talented individuals in the public sector. I look forward to continuing to work hard with those individuals as well as the opportunity to work with some of the younger folks that are now entering the public sector. I’m thankful for all the great people I have met and have had the pleasure to work with over the years.

 

 

 

Any financial and/or investment decision should be made only after considerable research, consideration, and involvement with an experienced professional engaged for the specific purpose. Past performance is not an indication of future performance. Any financial and/or investment decision may incur losses.

Tags: Local Government Investment Pools, Portfolio Management, FOMC, investment advisor, local government investment pool administration, Investing Public Funds, Managing Public Funds, Public Funds Investment, Public Trust Advisors

FOMC Moves... Again!

Posted on Thu, Mar 16, 2017
 
March 16, 2017
 
The Federal Open Market Committee (FOMC) meeting concluded yesterday at 2:00 p.m. (EST). As was widely expected, the FOMC raised the target range for federal funds to 0.75-1.00 percent. This is the third 25 basis point increase in 15 months.
 
The FOMC "Dot Plot" released following yesterday’s meeting reflects the expectation of two more hikes this year followed by three additional hikes the following year. The FOMC statement noted that “in view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate to 0.75-1.00 percent.” 

“The Committee expects that economic conditions will evolve in a manner that will warrant gradual increases in the federal funds rate” the FOMC said in its statement and reiterated that “with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, labor market conditions will strengthen somewhat further, and inflation will stabilize around two percent over the medium term.” The next FOMC meeting will be on May 3, 2017. At the present time, the market is not expecting another rate hike at that meeting.
 
Investment management services for the public sector
*Source: Bloomberg 
 
 
Disclaimer: This communication is for informational purposes only. All information is assumed to be correct but the accuracy has not been confirmed and therefore is not guaranteed to be correct. Information is obtained from third party sources that may or may not be verified. The information presented should not be used in making any investment decisions and is not a recommendation to buy, sell, implement, or change any securities or investment strategy, function, or process. Any financial and/or investment decision should be made only after considerable research, consideration, and involvement with an experienced professional engaged for the specific purpose. All comments and discussion presented are purely based on opinion and assumptions, not fact. These assumptions may or may not be correct based on foreseen and unforeseen events. Past performance is not an indication of future performance. Any financial and/or investment decision may incur losses.

Tags: federal open market committee, Federal Reserve, FOMC, investment managment for the public sector, LGIP Administration, The Fed, Public Trust Advisors, LGIP Rates, Investing Public Funds, Safety and Liquidty

4 Things You Need to Know about the FOMC Rate Raise

Posted on Wed, Dec 14, 2016

Four Things You Need to Know about the FOMC Rate Raise

Fed Raise.png
 

The Federal Open Market Committee (FOMC) voted today, December 14, 2016, to raise rates by 25 basis points.

Here are the 4 things you need to know:

1) The increase in rates should directly influence the returns for local government investment pool (LGIP) investments in a positive manner. Yields should move up.

2) With this gradual raise, the Committee expects moderate expansion in economic activity and strengthening of labor market conditions.

3) LGIP rates under Public Trust Advisors, LLC management have been steadily on the rise since the beginning of 2015.

4) Based on the dot plot, the FOMC noted that three additional rate hikes are expected in 2017. The fragile state of the global economy will require the Fed to move cautiously as it continues to look at tightening monetary policy.

Please contact a Public Trust Advisors, LLC representative if you have any questions, would like more information on public funds management, or simply how you can get involved. We wish you a happy and successful new year!

 

*The views expressed within this material constitute the perspective and judgment of Public Trust Advisors, LLC at the time of distribution and are subject to change. Nothing contained herein should be construed as investment, legal, business, tax, or accounting advice. You should consult your own advisors as to such matters and related matters concerning the information provided and its suitability for you. The information contained herein does not purport to contain all of the information that may be required to evaluate any investment options described herein. None of Public Trust Advisors or any of its affiliates make any representation or warranty, express, or implied as to the accuracy or completeness of the information contained herein, and nothing contained herein shall be relied upon as a promise or representation whether as to the past, current, or future performance. No representation is made as to its accuracy or completeness. It should not be construed as an offer or to purchase/sell any investment.  Any financial and/or investment decision may incur losses.  Past performance is no guarantee of future results. 

Tags: The Fed, LGIP Rates, Federal Reserve, FOMC, 2016 December Rate Hike

What's the Latest in Local Government Investment Pools?

Posted on Tue, Nov 03, 2015

By Greg Wright, President and Matthew Starr, Vice President 

Change is constant in the local government investment pool (LGIP) space, here are some of the recent topics being discussed at Public Trust.

Still All about the Fed?

Were you amongst the optimists who thought the Federal Open Market Committee (FOMC) would make their interest rate move back in March?  If so, then surely you became convinced it was coming in September. Let down twice (or more) by our central bankers, now you are not sure when, or if, an interest rate increase will ever happen. We get it, budget planning is tough enough without the uncertainty surrounding interest rates and when the Fed might execute a 25 basis point increase in the fed funds target rate. Need more guidance?  Let us help, here is the latest Dot Plot in advance of the October 25th FOMC meeting. For a refresher on how to interpret, revisit our blog post from May 2015.

Source: Bloomberg

Public Trust Managed LGIP Rates are on the Rise!

Want some good news? We have some for you, LGIP rates have been increasing. Granted not at a 50-100 annualized basis points clip, but incrementally to the point some LGIP rates are starting to approach 2010 levels again. However, while interest rates are creeping up, these returns are nowhere near the pre-Great Recession yields, for that to happen, we need the FOMC to re-set the target rate.

In addition to the anticipated FOMC rate hike, there are also a number of other factors that impact LGIP rates:

  • Portfolio management style and approach
  • Investment policies
  • Management fees

In our opinion, another key element that promotes higher yields is Public Trust’s ability to operate with greater efficiency and maintain lower operating costs without sacrificing service (or safety). For more information on Public Trust’s approach to LGIP operational efficiency, read a recent white paper. These savings allow us to maintain a competitive management fee and better yields for our LGIP Participants.

Money Market Reform, Not for LGIPs

The United States Securities and Exchange Commission (SEC) Money Market Reform, slated to go into effect in October 14, 2016 will largely constitute a non-factor for the LGIP space.  Remember the SEC does not have purview over local government investment pools. The vast majority of LGIPs are created and operate in accordance with state laws. True there may be similarities in structure, valuation procedures, permitted securities, reporting and oversight between SEC registered funds and LGIPs, but come next fall, LGIPs will not migrate to a floating net asset value, like prime-styled (credit exposure) SEC registered money market funds. Under the reform, government-styled (100% government securities) funds can opt out of the floating net asset value requirement.

Are local government investors that use registered money market funds ready for the accounting requirements and cash-management changes that the new rules bring? Not familiar with new SEC Money Market Rules, read more here. Just remember this, come next October, LGIPs will remain stable dollar funds.

Transparency: LGIPs Reflect Client-Base

Transparency is a cornerstone of good government. Public Trust manages LGIPs and therefore, we need to operate in a manner that serves our clients’ needs. Maybe you have not taken a moment to consider the level of reporting and transparency associated with Public Trust managed LGIPs, well we have. Here is a quick, but important summary of the transparency-related reports available to all of Public Trust’s LGIP Participants via their websites as well as the reporting platform MYACCESS:

  • Daily Rates 
  • Monthly Statements 
  • Portfolio Holdings
  • Newsletters
  • Monthly Fund Analysis 
  • Information Statements
  • Annual Report 

We at Public Trust recognize that financial transparency plays a big part in the overall safety and security of your public funds. As an investor working on behalf of your community, it is essential that you receive a high quality service which can provide you with a variety of tools to assist in your daily responsibilities.  You aren’t allowed to keep secrets from your tax-payers, so Public Trust does not keep secrets from you!

Best regards,

Your Public Trust Staff

 

The views expressed within this material constitute the perspective and judgment of Public Trust Advisors, LLC at the time of distribution and are subject to change. Nothing contained herein should be construed as investment, legal, business, tax or accounting advice. You should consult your own advisors as to such matters and related matters concerning the information provided and its suitability for you. The information contained herein does not purport to contain all of the information that may be required to evaluate any investment options described herein. None of Public Trust Advisors or any of its affiliates make any representation or warranty, express or implied, as to the accuracy or completeness of the information contained herein, and nothing contained herein shall be relied upon as a promise or representation whether as to the past, current or future performance. No representation is made as to its accuracy or completeness. It should not be construed as an offer or to purchase/sell any investment.Past performance is not an indicator of future performance or results. Any financial and/or investment decision may incur losses.

Tags: public funds investing, public funds investor, Public Funds Investment, Local Government Investment Pools, public investor, rating agency risk, Money Market Rules, Federal Reserve, LGIP Rates, Publc Trust Managed lgip, The United States Securities Exchange Committee, The Fed, local government investment pool administration, money market funds, financial transparency, LGIP operational efficency, investment advisory services, Investing Public Funds, LGIP Administration, public trust, federal open market committee, Safety and Liquidty, Public Trust Advisors, LGIP investment solutions, SEC, FOMC

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