Minutes of the Archives Partnership Trust Board Investment Committee Meeting
10:00am, April 17, 2013
Cultural Education Center, Room 11G, Albany, NY
Investment Committee Members Present
Barbara Brinkley, Board Treasurer and Committee Chair; John Hanna, Jr., Board Chair; Harold N. Iselin and Rosemary Vietor (all attending telephonically)
Christine W. Ward, Assistant Commissioner for the State Archives and Trust Executive Officer; and Jill Rydberg, Board Assistant Treasurer and Administrative Officer/Director of Prospect Research
Paul Murray, First Vice President, Investments, Janney Montgomery Scott LLC (attending telephonically)
Investment Committee Members Excused
Call to Order
Ms. Brinkley called the meeting of the Investment Committee to order at 10:05am, noting the presence of a quorum. She invited Mr. Murray to begin with his report.
Review of Portfolio Performance for the Last Quarter and Investment Distribution as a Result of Market Performance
Mr. Murray, reviewing the Executive Summary page of the Portfolio Review, reported that as of March 31, 2013:
- The account value was $3,517,672.
- The broad portfolio composition was 7.21% in cash equivalents (cash and fixed income or securities that will mature in the next six months), 71.27% in equities (stock mutual funds and stock index exchange traded funds), 17.71% in fixed income (remainder of CDs, and the bond funds), and 3.80% in multi-asset holdings (e.g., mutual funds that are composed of multiple asset classes). This leaves the stock to bond ratio at 75% to 25%.
- Performance of the Trust’s portfolio vs selected benchmarks for the 1st quarter 2013 and since 12/31/2006 respectively:
- 6.22% and 4.30% for the Trust’s Portfolio
- 6.71% and 5.11% for the Blended Benchmark Portfolio (33% BarcAgg; 33% MSCI; 34% Russ2000).
- -0.12% and 5.84% for Barclays Capital Aggregate Bond Index
- 10.61% and 3.86% for S&P 500 Composite Total Return
- 0.02% and 0.94% for 3-month yield T-Bill
- Activity Summary: the account’s value was $3,517,672, an increase of $155,803 for the quarter, with a net flow of -$54,320 (deposits less withdrawals) and total earnings of $210,124 ($11,421 earned income and $198,703 change in market value). He noted that cash deposits of about $103,000, a stock gift of about $2,500 (per Trust policy immediately sold so as to not take any single issue stock risk), and a withdrawal of $159,938 (for projects and operations) all figured into the quarter’s return.
Mr. Murray said the portfolio is performing in line with a conservative, blended, diversified portfolio, even though it is 75% in the market. He noted the American Funds mutual funds that make up the core of the Trust’s mutual funds are from a solid, conservative, value-oriented family of funds. The general stock market’s good 1st quarter performance was primarily fueled by continued historic low interest rates and slowly improving economic conditions leaving investors continuing to buy dividend paying stocks for income and return. The 10-year Treasury (a benchmark for interest rates) yield is 1.7%, and he sees this as an indication of uncertainty. He sees the Trust’s portfolio as positioned to capture 60% to 75% of the market, since it is not fully invested in the market.
Mr. Murray reported the markets have seen some volatility since the end of the 1st quarter, and he anticipates the volatility will continue, such that the markets may flatten out in the 2nd quarter as investors take a wait-and-see approach. However, the underlying factors of low interest rates and an improving economy are generally good and a reason to stay with the overweighting in stocks. If there were better fixed income investments available, he would certainly discuss taking money off the table, but available investment grade bonds, CDs, and treasuries are yielding less than 2%.
Mr. Hanna asked about the U.S. markets moving forward while the European markets are not.
Mr. Murray said U.S. markets are still looked at as a flight to safety for foreign investors. He also noted investors have recently been selling their gold and based on history that cash is likely moving into equities. The Trust portfolio’s international exposure has been reduced over the last few years. He noted the Quick View Report, which gives greater asset allocation detail, indicates the Trust portfolio’s global exposure is about 12% but as global includes U.S., the true international exposure is probably about 10%. Between American Mutual, Fundamental Investors, and Growth Fund of America, nearly $1.5 million of the portfolio is weighted in large U.S. companies. Multi-national companies such as Johnson & Johnson, Proctor & Gamble, and AT&T are attracting a lot of money from a dividend standpoint.
Ms. Brinkley commented that the U.S. economy headlines seem dismal with more people on food stamps, shrinking labor participation, and job creation rates not keeping up with population growth. Mr. Murray said the Federal Reserve has been engineering the economy to stay afloat, and investors wonder what impact a change in policy might have on the markets; however the Federal Reserve has not given any indication that they will change policy. There still is a demand for the low yield bonds and Treasuries as investors see mixed signals in the economy. Yet offsetting some of this is a strong consumer demand for housing and discretionary spending all benefiting from low interest rates.
Mr. Murray reported a couple of earnings reports this morning from Yahoo and Intel both raise cautionary comments going forward. There has been a strong run on the market since last summer without a major correction, so he thinks the markets may be due such a correction, but as there is a lot of cash on the sidelines many investors are waiting for that entry point and will continue to buy equities when there is a good opportunity.
Mr. Murray said he is always on the lookout for a reasonable rate of return on non-stock market investments, but for now recommends staying the course, but to expect volatility going forward.
Mutual Funds - Growth and Reasonable Safety
Mr. Murray noted he continues to be confident and comfortable with the American Fund Group and how they manage money, the types of companies they are in, and the profits that they have. He said while not every decision is based on the Morningstar reports, it is one test to pass. The report lists the Trust’s funds from highest to lowest performance, and all have 3-, 4-, or 5-star ratings. Those with the highest returns are the income-oriented funds. He said he is in touch with American Funds Group on a regular basis; that they are looking out 3 to 5 years and see a good scenario for US companies.
Mr. Murray highlighted:
- American Mutual, Fundamental Investors, and Growth Fund of America returns for the quarter ranged from 8.01% to 10.78%.
- Capital World Bond Fund is the only fund in the red for the quarter, likely due to a slight rise in interest rates and concerns with foreign exposure, but he is not concerned as it is a well-managed, high quality fund that we own for diversification. With about $125,000, it is not a major holding. Last year it gave about a 7.4% return.
- The Vanguard funds are doing what he would expect, which is not more than 2% to 3% a year. They are a next step up from a money market or CD.
Review of Bond Performance
Mr. Murray reported that as he had suspected, the $70,000 GE Capital Corp bond was called (at par) on February 15, 2013.
Mr. Murray noted the $50,000 GE Company Note bond matured on February 1, 2013. The $50,000 GE Money Bank CD matures on May 7, 2013, and will go into cash. The next CD doesn’t mature until June 2014 and all of the CDs that remain in the portfolio are non-callable issues, so nothing else will need reinvesting in a low rate environment.
Bond Ratings/Investment Changes
Currently, there are no bonds in the portfolio.
Fulfillment of Bond/CD Safety and Yield Goals
Mr. Murray said that the FDIC-insured CDs continue to fulfill safety and yield.
Cash Available vs. Cash Flow Needs
Ms. Rydberg reported that as noted in the agenda, at March 31, 2013, there was $213,661 in cash, with commitments of $173,615, leaving $40,046 available for potential investing (not including the $50,000 CD maturing in May). About half of the current commitments will need cash within approximately 3 months and the remaining commitments will need cash by about the end of the calendar year.
Mr. Murray suggested leaving the $40,046 liquid, but investing the $50,000 maturing in May in a non-equity holding, such as a CD or adding to one of the Trust’s Vanguard funds. A motion to authorize Mr. Murray to recommend to the Committee, via email, one or two investments for the $50,000 maturing in May, was made by Mr. Hanna, seconded by Mr. Iselin, and unanimously passed.
Resolved, that the Investment Committee hereby authorizes Mr. Murray to recommend to the Committee, via email, one or two investments for the $50,000 proceeds from the GE Money Bank CD maturing on May 7, 2013.
Endowment Balance and Quality
Mr. Murray said he was comfortable with the current allocation and therefore was not looking to make any changes at this time, but was open to discussion from the Committee. Ms. Brinkley said she was concerned that the economy seems to be running on fumes, so wondered how the portfolio might be drawn back or become more defensive if warranted. Mr. Murray said the portfolio, which started out with a 50%-50% equities to fixed income goal, has become more dependent on the market, but if money is taken off the table, we are looking at only 1%-2% returns in CDs and high quality bonds of 4 to 5 years maturity, so there would have to be a trade off of expectations (e.g., give up potential return in order to reduce the chance of loss by reducing exposure).
Mr. Hanna asked what large endowments, such as those at Harvard, Yale, and Princeton, are doing. Mr. Murray said, like the Trust, their portfolios are over-weighted in equities; however they also are looking at alternate strategies such as hedge funds and non-traditional assets such as real estate, but that it is difficult for an account of the Trust’s size to get into such investments.
Ms. Brinkley noted the Investment Committee was next scheduled to meet at 10:00am on July 17, 2013.
A motion to adjourn the meeting was made by Ms. Vietor, seconded by Mr. Hanna, and unanimously passed. Ms. Brinkley adjourned the meeting at 10:49 am and thanked all for their participation.
Jill A. Rydberg
April 19, 2013