Minutes of the Archives Partnership Trust Board Investment Committee Meeting
January 19, 2011
Cultural Education Center, 11G,
Investment Committee Members Present
John Hanna, Jr., Board Chair; Harold N. Iselin; and Rosemary S. Vietor (all attending telephonically)
Robert Bullock, President; 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)
Call to Order
Mr. Hanna called the meeting of the Investment Committee to order at 10:34am, noting the presence of a quorum with Mrs. Vietor in attendance (Mr. Iselin was expected to join later in the meeting). He explained that as Board Treasurer Lawrence Staub’s term on the Board had expired (and whereas by law he could not be reappointed by the Governor his Board position was filled by the appointment of Lauren Rachlin) he would serve as chair pro tem of the Committee until Board officer elections are held in May when a new Treasurer would be elected. He asked Mr. Murray to begin his portfolio review.
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 December 31, 2010:
- Portfolio Composition: the composition was 12.49% in cash equivalents, 56.84% in equities, 27.53% in fixed assets, and 3.13% in multi-asset holdings (e.g., mutual funds that are composed of multiple asset classes). The portfolio is pretty well balanced at about 40% fixed income and 60% equity. Of the cash equivalents, about $258,000 is in the money market, the balance is in short-term CDs.
- Performance: for the fourth quarter 2010, year-to-date, and since inception was 5.22%, 8.62%, and 2.92% respectively compared to the following selected benchmarks: 5.07%, 11.04%, and 2.24% for a blended benchmark portfolio; -1.30%, 6.54%, and 6.17% for the Barclays Capital Aggregate Bond Index (down for the quarter mainly due to a rise in long term interest rates); 10.76%, 15.07%, and -0.83% for the S&P 500 Composite Total Return; and 0.03%, 0.12%, and 1.42% for a 3-month yield T-Bill.
- Activity Summary: the account’s value was $3,522,305 an increase for the quarter of $260,082, with a net flow (withdrawals vs. deposits) of $88,662, and total earnings of $171,420 ($29,724 earned income and $141,696 change in market value). He added that as of today the account’s value had grown to about $3,568,000.
He noted that the portfolio’s defensive posture has helped year after year, and noted that the portfolio’s year to date trailing of the “blended benchmark portfolio” was due to staying conservative.
Mrs. Vietor asked whether the performance of the equities could be broken out to compare to the S&P 500. Mr. Murray said that while the report does list the performance of individual equity holdings, he would see if he could add the performance of a composite of the equities to future reports. Mrs. Vietor asked if the report included the average maturity for the fixed income holdings. Mr. Murray said that information is found later in the report under Fixed Income Analysis, where the weighted averages note that the average maturity is 1.83 years and the average coupon rate is 3.979%. He added that $95,000 is maturing in 2011, $350,000 in 2012, and $95,000 in 2013, then nothing until 2016; and explained that a conscious effort had been made with more recent investments to stay short term because of low interest rates. Mr. Hanna asked how the portfolio might compare to the NYS Pension Fund and Mr. Murray thought the Pension Fund was more heavily weighted in equities (possibly 80-85%) whereas the Trust’s portfolio aims to stay around 60% equities.
The Historical Returns page shows the fourth quarter’s performance as well as past performance in both bar graph and table formats. Mr. Murray pointed out how the portfolio bounced back nicely with a 17.09% return in 2009 after holding its own against the benchmarks in2008 with a return of -19.36% vs. returns of-20.18% and -37.00% for the blended benchmark portfolio and the S&P 500 respectively.
Reviewing the Portfolio Holdings page, he noted:
- Cash Equivalents: the next to mature holding is a $95,000 CD to mature in June 2011.
- Equities: moves earlier in 2010 into small, mid-cap, and emerging markets funds –sectors that drove growth in 2010 year– added exposure to areas the Trust’s portfolio didn’t have before and are paying off.
- Fixed Income: includes CDs, bonds, and bond funds, with nothing due to mature until 2012. Interest rates at that time will help inform how to invest the proceeds, as short-term rates are still low and he doesn’t expect to see substantially higher rates over the next 6 to 12 months. Longer-term rates saw a nice jump from about 2.5% in July to a present rate of about 3.35%, and were the reason bond funds came down in value. The bond funds are a cash substitute as they continue to offer a better return than the money market. He did not recommend any changes, and exampled that the Capital One Bank CD due to mature in 2012 (with a face value of $95,000 and a coupon rate of 4.5%) could probably be sold in the open market now for $99,000, however forgone would be $6,412 in interest vs. the $4,000 immediate gain; and little chance of reinvesting at a comparable or better rate. He suggested the only reason to sell such a short-term holding was if the new investment was something completely different (e.g., stock market) or for a much longer term (e.g., a 10-year bond yielding 4.25%).
- Multi-Asset: the Capital Income Builder Fund is considered multi-asset as it is invested in various market sectors.
- Cash: the money market is currently earning about 0.10%. While the account appears cash rich with $343,720, there will be the usual withdrawals during the first quarter of 2011, leaving only about $30,000 in cash.
Mutual Funds - Growth and Reasonable Safety
Mr. Murray noted that:
- American Funds Group mutual funds served the portfolio well in 2010. The holdings, always a well-diversified mix, became even stronger over the last year or so with adding small-cap, mid-cap, and emerging market exposures.
- He reviewed the specific funds, reporting that:
- Capital Income Builder: looks a lot like the Trust’s overall portfolio, lagged a bit, but is dividend oriented (about 4.0% a year that is reinvested), is a reasonable, conservative foundation holding.
- Capital World Growth & Income Fund: one of the portfolio’s anchor funds reflected the fact that foreign stocks didn’t have a really great year in 2010, yet was only 0.5% under its comparable benchmark.
- Capital World Bond Fund: holds mostly high quality, intermediate term bonds; fixed income outside the U.S.
- Fundamental Investors: one of the better performing funds in the American Funds Group and another of the anchor funds in the portfolio.
- Growth Fund of America: another anchor fund in the portfolio that is value oriented with respectable returns.
- New Perspective Fund: another anchor fund in the portfolio, similar to Capital World Growth & Income, but with more U.S. exposure.
- New World Fund: an emerging market fund that tends to be a bit more conservative.
- SMALLCAP World Fund: had a good year with a return of 24.92%.
- Washington Mutual Fund: was an anchor fund in the portfolio at one time, as it used to hold up especially on the downside, but as it has not been helping on either the upside or downside for a while, in an effort to be prudent, most of it has been sold off over time (moving a lot to Fundamental Investors) and now hold only about $58,000.
- iShares S&P Small Cap 600 Growth: direct exposure to primarily U.S. small cap.
- Royce PA Mutual Fund: primarily index funds with a value manager.
- SPDR Mid Cap 400: is seeing good upside performance,
Mr. Murray suggested that index funds could be an area in which to increase exposure for the Trust’s portfolio. Mr. Hanna asked Mr. Murray if he would recommend selling the balance of the Washington Mutual Fund holding, and if so, where to invest the proceeds.
Mr. Iselin joined the meeting at 11:15am, and Mr. Hanna apprised him of the discussion on the table. Mr. Hanna asked the Committee for their thoughts on selling Washington Mutual Fund. Mr. Iselin said he would like to hear recommendations from Mr. Murray, and advised needing to be extra conservative, yet fixing holdings that aren’t working. Mr. Murray said he would recommend moving the proceeds of Washington Mutual Fund along with the nearly $30,000 of cash to a more aggressive small- or mid-cap, such as the iShares S&P Small Cap 600 Growth, as the portfolio currently has only about 15% allocated to small- or mid-cap assets (as noted on the Asset Allocation section of the report).
Mrs. Vietor asked about Janney Montgomery Scott’s view on the economy, if Janney had a model portfolio, and the goal of the Trust’s portfolio. Mr. Murray said Janney is cautiously optimistic that the worst is behind us and that the market appears to continue heading in a positive direction, although the pace probably will slow down after two recovery years; that Janney does not put out a single model portfolio due to having a range of clients with varying needs; and that the goal of the Trust’s portfolio was to provide cash flow and income to meet withdrawal needs and provide for growth over time. He added that once the committed cash was withdrawn, the allocation would be closer to 70% equities and 30% fixed income.
Mr. Hanna asked for a motion regarding Mr. Murray’s recommendation. A motion to approve a resolution directing Janney Montgomery Scott, LLC, to sell the balance of the Washington Mutual Fund and use the proceeds along with the approximate $30,000 from cash and purchase additional shares of iShares S&P Small Cap 600 Growth was made by Mr. Iselin, seconded by Mrs. Vietor, and unanimously passed.
Resolved: That the Archives Partnership Trust Board’s Investment Committee directs Janney Montgomery Scott, LLC to sell the balance of the Washington Mutual Fund and use the proceeds along with the approximate $30,000 from cash and purchase additional shares of iShares S&P Small Cap 600 Growth.
Review of Bond Performance
Mr. Murray reported that no bonds been called during the quarter.
Mr. Murray reported that the next holding to mature was a $95,000 CD in June 2011. He said he does not recommend selling any bonds or CDs so close to maturation as by locking in gains now we would be giving up income.
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 December 31, 2010, there was $29,953 in cash available for investment (the remaining cash is needed to fulfill current fiscal year commitments).
Endowment Balance and Quality
As the balance and quality of the account had been discussed throughout the meeting, Committee members had no further comments on the matter.
Upon the motion to adjourn the meeting made by Mr. Iselin, seconded by Mrs. Vietor, and unanimously passed, the meeting adjourned at 11:40am.
Jill A. Rydberg
January 21, 2011