Archives Partnership Trust Investment Committee Meeting
Cultural Education Center, 11th Floor
July 20, 2011
Barbara Brinkley, Board Treasurer and Committee Chair; John Hanna, Jr., Board Chair; Harold N. Iselin; Stephen Pagano; and Rosemary Vietor (all attending telephonically)
Christine W. Ward, Assistant Commissioner for the State Archives and Trust Executive Officer; 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
Ms. Brinkley called the meeting of the Investment Committee to order at 10:05am, noting the presence of a quorum, and then invited Mr. Murray to present his report on the portfolio.
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 June 30, 2011:
- Portfolio Composition: the composition was 13.20% in cash equivalents, 62.45% in equities, 20.96% in fixed income, and 3.39% in multi-asset holdings (e.g., mutual funds that are composed of multiple asset classes).
- Performance of the Trust’s portfolio vs selected benchmarks:
2nd Qtr 2011
Blended Benchmark Portfolio
(55% S&P; 35% bonds; 10% cash)
Barclays Capital Aggregate Bond Index
S&P 500 Composite Total Return
3-month yield T-Bill
- Activity Summary: the account’s value was $3,434,026 an increase for the quarter of $28,649, with a net flow (withdrawals vs. deposits) of $13,483, and total earnings of $15,166 ($18,710 earned income and -$3,543 change in market value).
Mr. Murray reported that the market in the second quarter had been rather quiet with a bit of late volatility, and noted that the because of the Trust portfolio’s asset allocation, it won’t mirror the market. He explained that the cash equivalents includes holdings that will mature in the next 12 months noting $295,000 (or 13.0% of the portfolio) in short-term CDs will mature in mid-2012. He said the portfolio’s year-to-date performance is tracking right along for a conservative portfolio – better than a bond portfolio, but less than a stock portfolio.
Mr. Murray noted that the U.S. markets had performed better than the global markets. Mr. Hanna asked if the portfolio’s international exposure should be expanded over the next year or so. Mr. Murray said on a short-term basis he would not recommend increasing international exposure at the moment; that longer term, more aggressive accounts will be invested in emerging markets, but the Trust has always taken a more conservative approach. The Trust’s portfolio has less than 4.0% exposure to emerging markets at present and he recommended waiting for the right time to increase this exposure. Ms. Brinkley asked how international exposure was measured and whether the trades were in U.S. or foreign currency. Mr. Murray said exposure was based on ownership of companies domiciled overseas and that trades were dollar denominated. He added that some of the international funds may engage in currency trading but the exposure is very minimal (less than 2% of assets). Ownership of stocks and bonds are the primary focus of these funds.
Mutual Funds - Growth and Reasonable Safety
Mr. Murray noted that Trust’s mutual funds are still meeting quality and safety standards, with most performing comparable to their peer groups. Referencing the Morningstar report, the funds held by the Trust are 3- to 5-star rated funds. He reported that the iShares S&P and SPDR S&P are the top performers; the small- and mid-cap holdings are doing well; Fundamental Investors, the largest holding, is tracking right along with the market; and that the American Funds Group is conservative and therefore appropriate for a portfolio like the Trust’s.
Ms. Brinkley asked about the Trust’s equities being mostly in mutual funds rather than individual stocks. Mr. Murray explained that the portfolio did hold some individual stocks for a few years for their dividend yields, but the Committee had decided to sell them and stay diversified within mutual funds and exchange traded funds (ETFs). He said most of the mutual funds are from the American Funds family where with an investment of $1 million or more, there are no front-end or start-up costs, no loads, and no transaction charges, and American Funds has one of the lowest internal management fees (average is 0.75%). The Trust currently has just over $2 million in American Funds mutual funds. He added that the ETFs provide small- and mid-cap exposure.
Review of Bond Performance
Mr. Murray reported that no bonds had been called during the quarter.
Mr. Murray noted that the Wachovia $95,000 CD matured on June 20, 2011, and that pursuant to the Committee’s decision at the prior meeting a $50,000 GE Capital Financial CD was purchased, with the balance added to cash to cover Trust commitments.
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. The three corporate bonds are all good, solid, AA rated bonds.
Cash Available vs. Cash Flow Needs
As noted in the agenda, at June 30, 2011, there was $159,870 in cash, with commitments of $215,833. It is expected that earnings between now and the end of the fiscal year will cover expected commitments.
Endowment Balance and Quality
Having discussed balance and quality throughout the meeting, discussion involved:
1. the economy and the market:
Mr. Murray anticipated that the Federal government would work out the debt ceiling and other issues so as the Treasury won’t go into default, but that we are in for a choppy summer market. He suggested that low interest rates provide something of a floor for the market; and investors are looking at how U.S. blue chip companies have cautiously managed through recent times. He added that the best year-to-date performance for American Funds was its Washington Mutual Fund with a year-to-date of 8.17%. As the Trust held Washington Mutual for a long time, but had divested those holdings over time, Mr. Hanna suggested adding to the October 19, 2011, meeting’s agenda a discussion on whether to invest again in Washington Mutual. Mr. Murray said that while Washington Mutual’s recent performance was good, that Fundamental Investors had performed better over the long term.
2. mutual funds characteristics:
Ms. Brinkley asked about the top holdings in the mutual funds, and whether that information could be provided in future portfolio reports; also if the Trust were limited to one mutual fund family. Mr. Murray highlighted a few of the top holdings and said that information had been included in the past and that he could add that to future reports. Regarding mutual fund purchases, Mr. Murray said that purchases were based on Committee discussion and decision, following recommendations he provided; that while most mutual funds were from the American Funds family, some more recent purchases were not.
3. portfolio allocation goals:
Ms. Ward, following up on questions raised at the prior meeting, reported that the Trust’s Investment Guidelines do not include specific portfolio allocation goals, but rather leave the investment allocations up to the Committee. The Guidelines do define permitted investments, encourage diversification, and directs the Board toward prudent investments for long-term considerations.
4. Uniform Prudent Management of Institutional Funds Act (UPMIFA):
Ms. Ward noted that Scott Fein (partner, Whiteman Osterman & Hanna) continues to research New York’s version of UPMIFA (which governs the management and investment of funds held by non-for-profit corporations and other institutions) and consult with the Trust’s audit firm and others, and he will report to the Board at its October meeting. .
Ms. Brinkley adjourned the meeting at 10:55am.
Jill A. Rydberg
August 5, 2011