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Minutes of the Archives Partnership Trust Board
Investment Committee Meeting
11:00am, April 30, 2012
Cultural Education Center, Room 11G, Albany, NY

Investment Committee Members Present

Barbara Brinkley, Board Treasurer and Committee Chair; John Hanna, Jr., Board Chair; and Rosemary Vietor (all attending telephonically)

Staff Present

Christine W. Ward, Assistant Commissioner for the State Archives and Trust Executive Officer; Robert Bullock, Trust President; and Jill Rydberg, Board Assistant Treasurer and Administrative Officer/Director of Prospect Research

Others Present

Paul Murray, First Vice President, Investments, Janney Montgomery Scott LLC (attending telephonically)

Investment Committee Members Excused

Harold N. Iselin and Stephen Pagano

Call to Order

Ms. Brinkley called the meeting of the Investment Committee to order at 11:25am, noting the presence of a quorum. Ms. Ward noted the start of the meeting had been delayed by a fire drill requiring evacuation of the building.

Review of Portfolio Performance for the Last Quarter and Investment Distribution as a Result of Market Performance

Mr. Murray, reviewing the Executive Summary page reported that as of March 31, 2012:

  • Portfolio Composition:  the composition was 11.73% in cash equivalents (cash and fixed  income or securities that will mature in the next six months), 64.68% in equities (stock mutual funds and stock index exchange traded funds), 20.02% in fixed income (remainder of laddered bonds and CDs), and 3.58% in multi-asset holdings (e.g., mutual funds that are composed of multiple asset classes). 
  • Performance of the Trust’s portfolio vs selected benchmarks for the 1st Quarter 2012 and since 12/31/2006 respectively:
      • 7.51%  and 3.19% for the Trust’s Portfolio
      • 8.11% and 4.01% for the Blended Benchmark Portfolio (55% S&P; 35% bonds; 10% cash)
      • 0.30% and 6.24% for Barclays Capital Aggregate Bond Index
      • 12.58% and 2.04% for S&P 500 Composite Total Return
      • 0.03% and 1.10% for 3-month yield T-Bill
  • Activity Summary:  the account’s value was $3,340,579 an increase of $65,220 for the quarter, with a net flow of -$177,822 (deposits less withdrawals of $269,988), and total earnings of $243,042 ($11,721 earned income and $231,321 change in market value). 

Mr. Murray noted that even though there was a large withdrawal, the account still has more money than at the beginning of the quarter.  He further noted that as of today, the account is about $2,000 higher, reflecting a flattening out of the market.

Mr. Murray reported the story of the first quarter was the strengths in U.S. equities and equities across the board, and marked by:  a) a flight to safety coupled with a return of confidence, b) continued low interest rates making stocks attractive to long-term investors, and c) corporate earnings coming in good and helping to push stocks to where they are.  He said the quarter saw a little bit of return into foreign markets, but saw a lot of foreign money flowing into U.S. markets.

While the Trust’s portfolio is conservative, it had a good start for the year and he sees the 7.5% return as very respectable on a risk-adjusted basis.  He said that information technology (e.g., Apple’s performance dominated the headlines) was one of the strongest segments of the S&P 500, up over 21.0% in the first quarter.  In a period of a growth market he is not surprised to see the Trust’s portfolio lag slightly as it is not positioned for deep growth, rather for value, dividends, and steady total return.

Ms. Brinkley asked if any sector of the Trust’s portfolio performed better or worse than others.  Mr. Murray said that sector exposure is not really broken down since the portfolio doesn’t have individual issues.  However the mutual funds are well diversified with many having strong returns, especially those with international exposure such as Growth Fund of America (up 14.68%) as it is heavily invested in technology, with Apple its top holding.

Ms. Brinkley asked if the flight to safety – with money flowing from Europe to the U.S. – was likely to continue, considering the Trust has reduced its foreign exposure.  Mr. Murray said they still see more uncertainties in European markets than U.S. markets and do continue to see more investments flow into U.S. stocks and U.S.-based funds, but don’t want to rule out foreign investments.  He noted the U.S. is more advanced in its stage of recovery, but would not further reduce the portfolio’s foreign exposure; and that Janney is still bullish on emerging markets (e.g., China, India, Brazil – areas with rapidly growing economies), with good opportunities resulting from U.S. companies doing business in these areas.  Ms. Vietor said from what she has seen, the consensus seems to be that the U.S. economy may be growing, but notes past recoveries have been more robust – in a range of 4-7%.  Ms. Brinkley said her primary concern is Europe and wonders why it is good to invest there.  Mr. Murray noted that the global exposure in the Trust’s portfolio had been reduced from 20% to 11% and that European exposure was likely only 5-6%, citing:

  • -Capital World Growth & Income Fund:  32% U.S., 11% United Kingdom, 6% Switzerland, 5% France, 4.5% Germany
  • -New Perspectives Fund:  40% in U.S., 7.6 United Kingdom, and 5% Japan
  • -Capital World Bond Fund: only 15% exposure to the Euro, and had a positive return of 3.8%

as examples of not pure plays on the European market.

Mutual Funds - Growth and Reasonable Safety

Mr. Murray noted that:

  • The Trust’s mutual funds are still meeting quality and safety standards, with most performing comparable to their peer groups. 
  • American Mutual Fund, Capital Income Builder and Capital World Growth and Income fund are more conservative funds so are off to a slower start, as they are not heavily invested in growth or technology.
  • Fundamental Investors, Growth Fund of America, New Perspectives and SMALLCAP World fund all posted returns between 11.5% to 16.91% so a decent balance between growth and value, with acceptable returns and results.

Review of Bond Performance 

Bonds/CDs Called

Mr. Murray reported that no bonds had been called during the quarter.

Bonds/CDs Matured/Maturing

Mr. Murray noted that $350,000 in CDs is maturing between now and the end of July and will need to be addressed.  Ms. Brinkley asked if Ford Motor/Ford Motor Credit might be a consideration as it was recently upgraded.  Mr. Murray reported now that Ford bonds have achieved investment grade credit ratings, Janney has been using short-term (3-5 years) Ford bonds, since the 5-year Treasury is only 1%.  He is not tending to go more than 5 years in this environment, especially with corporate bonds, anticipating rates will be higher in 3-5 years.  It should be noted that Ford Motor has recently been upgraded to Ba1/BB+/BBB- which constitutes investment grade, but below the minimum rating standard of A for consideration by the Endowment portfolio.

Bond Ratings/Investment Changes

Mr. Murray reported that no bond ratings had been downgraded during the quarter. 

Fulfillment of Bond/CD Safety and Yield Goals

Mr. Murray said that the bonds currently held continue to fulfill safety goals (FDIC-insured CDs or investment grade corporate bonds rated A or better) and yield goals. 

Cash Available vs. Cash Flow Needs

As noted in the agenda, at March 31, 2012, there was $53,988 in cash, with commitments of $220.851.  The Trust will need $166,863 from the proceeds of the $200,000 in CDs maturing in May to meet its commitments, leaving about $33,000 available for investment, along with the $95,000 maturing in June and $75,000 maturing in July.

Endowment Balance and Quality

Ms. Brinkley asked if Mr. Murray was comfortable with the portfolio’s current allocation.  Mr. Murray said he was and therefore did not recommend any changes at this time.

Mr. Murray said while it was too early for specific recommendations concerning maturing holdings, the Committee could talk in theory about where to reinvest the funds.  He noted the portfolio’s balance is currently 70% in the market and 30% bonds (with a lot of that going away in the coming months).  He does not recommend taking on more market exposure at this time, so would not look at equities, but said the Committee needs to realize it will be reinvesting in a poor bond market with low returns – but the funds will be a safe hedge against the risks in the rest of the portfolio.  He said that in today’s market, insured CDs are offering rates of 0.7% for 2 years, 1.0% for 3 years, and 1.25% for 4 years, against a backdrop of the 10-year Treasury at 1.9%.

Ms. Brinkley noted an impact of the New York Prudent Management of Institutional Funds Act (NYPMIFA) on the Investment Policy is that the Committee needs to look at each holding within the portfolio and how they interact and protect the portfolio. Mr. Hanna concurred that with NYPMIFA, there are no longer formulas to guide balancing an endowment between equities and fixed income.

The Committee agreed to schedule another telephone meeting the first week of June to discuss investment recommendations and let the $33,000 that will become available in May sit in the money market in the meantime.  The Committee asked Mr. Murray to present, in advance of the meeting, at least 3 options such as Treasuries, the best bonds available, and other alternatives (e.g., dividend paying stocks).

Ms. Brinkley asked how this being an election year may impact the markets.  Mr. Murray said there hasn’t been a lot of chatter yet about the markets and the elections; that the elections could cause anything from short-term pauses to long-term benefits, but the markets have no clear direction now.

Conclusion

A motion to adjourn the meeting was made by Ms. Vietor, seconded by Mr. Hanna, and unanimously passed. Ms. Brinkley adjourned the meeting at 12:20pm and thanked all for their participation.

Respectfully submitted,

Jill A. Rydberg
Assistant Treasurer
May 21, 2012