Minutes of the Archives Partnership Trust Board
Investment Committee Meeting
1:00pm, October 24, 2013
Cultural Education Center, Room 11G, Albany, NY
Investment Committee Members Present
Barbara Brinkley, Board Treasurer and Committee Chair; Stephen Pagano, Board Chair; and Harold N. Iselin (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
Lauren Rachlin and Rosemary Vietor
Call to Order
Ms. Brinkley called the meeting of the Investment Committee to order at 1:04pm, noting the presence of a quorum. She reported that at its October 15, 2013, meeting the Archives Partnership Trust Board adopted resolutions to: a) amend the Investment Policy and Guidelines to allow the Committee discretion in deciding whether equity mutual fund and/or bond mutual fund dividends and/or capital gains shall be automatically reinvested or paid as cash, and b) appoint Lauren Rachlin to be a member of the Investment Committee. Mr. Murray noted that the Committee having discretion concerning the handling of mutual and bond fund dividends was discussed at the Committee’s July meeting in the context of finding ways to raise cash flow to meet withdrawal needs over the next few years to limit or prevent having to sell holdings to raise cash.
Ms. Brinkley 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 September 30, 2013:
- The account value was $3,804,153.
- The broad portfolio composition was 7.91% in cash equivalents (cash and fixed income or securities that will mature in the next six months), 72.84% in equities (stock mutual funds and stock index exchange traded funds), 15.60% in fixed income (CDs and the bond mutual funds), and 3.65% in multi-asset holdings (e.g., mutual funds that are composed of multiple asset classes); leaving the stock to bond ratio at about 76.5% to 23.5%.
- Performance of the Trust’s portfolio vs selected benchmarks for the 3rd quarter 2013, year-to-date, and since 12/31/2006 respectively:
- 5.72%, 13.55% and 5.01% for the Trust’s Portfolio
- 6.39%, 14.19%, and 5.78% for the Blended Benchmark Portfolio (33% BarcAgg; 33% MSCI; 34% Russ2000).
- 0.57%, -1.89%, and 5.12% for Barclays Capital Aggregate Bond Index
- 5.25%, 19.81% and 4.80% for S&P 500 Composite Total Return
- 0.01%, 0.04%, and 0.87% for 3-month yield T-Bill
- Activity Summary: the account’s value was $3,804,153, an increase of $223,896 for the quarter, with a net flow of $18,780 (deposits) and total earnings of $205,116 ($9,600 earned income and $195,516 change in market value).
Mr. Murray noted the markets had been generally unaffected by the day-to-day politics surrounding the government shutdown and debt ceiling, interest rates were falling, the stock market was going up, and that he anticipated the Federal Reserve will remain investor friendly over the next year or two. The Trust’s portfolio has benefited from being in the market beating the S&P 500 in the 3rd quarter, and today is at a high water mark of $3.9 million. In May/June, interest rates had started to rise, but have since faded. The interest rate on the 10-year Treasury bond had been close to 3.5% but today is 2.5%. The Trust’s portfolio’s 13.55% YTD trails the S&P 500, but is more conservative than the general indexes.
Mutual Funds - Growth and Reasonable Safety
Mr. Murray referenced the Morningstar report on the Trust’s mutual funds and ETFs (listed in highest to lowest YTD returns), which shows the small-cap and mid-cap funds being the portfolio’s top performers with YTD returns of 20.47 to 26.17%; large-cap funds is with YTD returns of 16.41% to 19.62%; the European and foreign funds with YTD returns of 5.74% to 14.59%; and the bond funds, due to higher interest rates, with YTD returns of -3.01% to -0.11%. He said the holdings are meeting growth and safety expectations, the American Funds Group remains bullish on the long-term nature of this market and the economic recovery that is happening, but that short-term is anyone’s guess. He does not expect 20% returns in 2014, but the funds in the Trust portfolio are set up to perform better than bonds and CDs.
Review of Bond Performance
Mr. Murray reported no bonds had been called.
Mr. Murray noted the next holding to mature is the $50,000 GE Capital Financial CD that matures on June 24, 2014.
Bond Ratings/Investment Changes
Currently, there are no individual 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 goals.
Cash Available vs. Cash Flow Needs
Mr. Murray reported as noted in the agenda that of the approximately $259,992 in cash $214,991 was earmarked to meet commitments (as noted on the agenda) leaving $45,001 available for possible investment.
Cash Needs and Projections
Mr. Murray asked Ms. Rydberg when funds might be needed. Ms. Rydberg said she expected to withdraw about $100,000 in the next couple of weeks and the approximate $115,000 balance before the end of the fiscal year (March 31, 2014).
Endowment Balance and Quality
Mr. Murray said the portfolio is performing well; however, it is prudent to examine the portfolio’s asset allocation, especially with its equity exposure over 75%. Ms. Brinkley noted every day the market goes up the portfolio’s equity exposure increases. Ms. Brinkley suggested re-appropriating the equity mutual fund and bond mutual fund dividends to cash rather than be automatically reinvested would contribute to rebalancing the portfolio. Mr. Murray agreed this would be a good first step toward accumulating cash. Mr. Pagano said it can be concerning that the market has had such a good long run, the P/E ratios are higher than historic averages, and that it is a mistake to try to time the markets, so the Committee needs to make sure it is comfortable with the holdings and how they are performing. Mr. Iselin said it is important to look at the allocation issue and asked if short-term bonds would be a better purchase than bond funds, if the Committee wants to reduce the equity exposure. Mr. Murray said if one is looking for absolute preservation of capital and the ability to know what funds we will have and when, then the only way to do that is with individual bonds rather than with bond funds that can fluctuate and don’t have a liquidation date. He added, if looking to increase the fixed income exposure with holdings we know we’ll need to use for cash, he would look at individual securities such as high-quality corporate bonds or bank insured CDs. Mr. Iselin suggested reducing the equity holdings by about 5% and putting the proceeds into individual bonds and/or CDs. Mr. Murray said it is smart to look ahead as when the Trust withdraws cash to meet current fiscal year commitments the equity exposure will really shoot up. He added it would be forward-thinking to sell while the market is high to rebalance the portfolio, and said that a 5% equity reduction would still leave the portfolio with a healthy equity exposure to participate in the market upside.
Ms. Brinkley asked whether the Trust’s Investment Policy and Guidelines define the asset allocation requirements and Ms. Ward reported that they do not include any requirements regarding allocation levels, just that the portfolio be diversified. There was discussion that the current prudent management rule also no longer defines allocation levels, but rather focuses on investments being prudent.
Mr. Murray noted that many investment portfolios are currently equity heavy and that it has been the right thing to do, but it depends on the situation and the Trust’s portfolio has regular cash flow needs not currently being met (due to a lack of a laddered maturity of bonds and CDs) so it is important to look ahead. Ms. Rydberg asked what dividends were expected between now and the end of the calendar year. Mr. Murray said about $15,000; that most equity mutual funds pay dividends on a quarterly basis while the bond mutual funds tend to pay monthly. Ms. Brinkley suggested it makes sense to both repatriate the mutual fund dividends to cash and reduce the current equity holdings.
A motion to recommend that starting immediately, the equity mutual fund and bond mutual fund dividends be paid as cash, rather than automatically reinvested, was made by Mr. Iselin, seconded by Mr. Pagano, and unanimously passed.
Resolved, that starting immediately, the equity mutual fund and bond mutual fund dividends be paid as cash, rather than automatically reinvested.
Mr. Murray said he would implement the change to the dividends immediately. The Committee further agreed to ask Mr. Murray to present a recommendation to sell about 5% to 6% of the equities to purchase short-term fixed-income investments. As allowed in the Investment Policy and Guidelines, Mr. Murray will email his recommendation to Ms. Rydberg who will in turn forward the recommendations on to the Committee for review and response via email.
Ms. Brinkley noted the Investment Committee was next scheduled to meet at 10:00am on January 15, 2014, but said if a need should arrive before that a meeting could be scheduled. She thanked the Committee members, Mr. Murray, and the Trust staff for their contributions and hard work.
A motion to adjourn the meeting was made by Ms. Brinkley, seconded by Mr. Iselin, and unanimously passed. Ms. Brinkley adjourned the meeting at 1:45pm and thanked all for their participation.
Jill A. Rydberg
November 7, 2013