Staff Report.Investment Report 3rd Quarter 20-21
PREPARED BY: Stephen Conway
Finance Director
Reviewed by: Town Manager, Assistant Town Manager, and Town Attorney
110 E. Main Street Los Gatos, CA 95030 ● 406-354-6832
www.losgatosca.gov
TOWN OF LOS GATOS
COUNCIL AGENDA REPORT
MEETING DATE: 5/18/2021 ITEM NO: 6
DATE: May 12, 2021
TO: Mayor and Town Council
FROM: Laurel Prevetti, Town Manager
SUBJECT: Receive the Third Quarter Investment Report (January through March 2021)
for Fiscal Year 2020/21.
RECOMMENDATION:
Receive the Third Quarter Investment Report (January through March 2021) for Fiscal Year
2020/21.
DISCUSSION:
As of March 31, 2021, the Town’s weighted portfolio yield was 1.43% which trended above the
Local Agency Investment Fund (LAIF) yield of 0.36%. This favorable yield differential was
primarily due to the LAIF portfolio’s weighted average maturity (WAM) of 220 days and the
Town’s longer WAM of 572 days. The Town’s weighted average rate of return of 1.43% at the
close of the third quarter was 52 basis points lower when compared to the third quarter return
of 1.95% in 2020.
During the third quarter, with LAIF yields dropping steadily each month, staff in coordination
with the Town’s investment advisor began replacing maturing investments in shorter term
maturities in the two to three year maturity range to capture current yields available that
exceed the rates expected to be earned in the State Local Agency Investment Fund (LAIF) pool
during that same time period. The State LAIF pool typically lags the market when current
market yields are either increasing or decreasing. However, with LAIF’s WAM of 220 days, staff
continues to expect a steady decline in LAIF portfolio yields until the LAIF portfolio reflects the
low short-term investment yields prevailing in the market.
The Federal Reserve (Fed) continues to confirm no expected change to its policy until late 2023.
The Fed said it is committed to keeping the target range for the federal funds rate at 0% to
0.25% until “labor market conditions have reached levels consistent with the Committee's
assessment of maximum employment.”
PAGE 2 OF 2 SUBJECT: Receive the Third Quarter Investment Report (January through March 2021) for Fiscal Year 2020/21 DATE: May 13, 2021
The Fed’s quarterly economic forecasts improved significantly reflecting the President’s $1.9
billion stimulus package and the accelerating pace of COVID-19 vaccinations. Unemployment is
expected to fall below 4% by the end of calendar year 2022, compared to the Fed’s previous
estimate of 5.5%. The Fed also forecasts a gross domestic product (GDP) of 6.5%, which if
achieved, would mean a recovery in GDP beyond the pre-pandemic levels. The forecast also
anticipates that inflation could be approaching or at the Fed’s annual target of 2%. In recent
months, perceptions about potential inflation has led to Treasury yields rising dramatically. For
example, on March 31, 2020, ten-year US Treasury notes were yielding .70% versus 1.74% on
March 31, 2020.
To meet the Town’s Investment Policy deadline for submittal of this report to the Town Council,
staff was not able to provide this report to the Finance Commission prior to Town Council
deadline. Staff plans on bringing this report to the Finance Commission for review in its June
2021 meeting. Staff’s current goal is to have all subsequent Investment Reports available to the
Finance Commission for review prior to submittal to the Town Council.
CONCLUSION:
Staff recommends that the Town Council receive the Third Quarter Investment Report (January
through March 2021) for Fiscal Year 2020/21.
Attachment:
1. Third Quarter Investment Report for FY 2020/21 (January through March 2021)