HomeMy WebLinkAboutItem No. 9 Presentation 02-09-2022 Administration Committee - Chandler Presentation.pdfCHANDLER ASSET MANAGEMENT, INC. | 800.317.4747 | www.chandlerasset.com
INVESTMENT REPORT
Period Ending December 31, 2021
Orange County Sanitation District
SECTION 1 Firm Overview
SECTION 2 Economic Update
SECTION 3 Account Profile
Table of Contents As of December 31, 2021
1
SECTION |Section 1 |Firm Overview
2
Specializing in Investment Management for Public Agencies
“We believe if we do what is right for our clients, our own success will follow.”
▪Independent & Employee-Owned
•Fixed income specialist since 1988
•Founded by public investment professionals
•Serve institutions with public sector focus
•Headquartered in San Diego, CA
▪Custom Investment Programs
•Investment solutions based on your risk profile and
return goals
•Strategies for operating, short-, and long-term reserves
•Direct contact with investment management team
▪Stable Team of Investment Professionals
•Team of investment professionals average over two
decades portfolio management experience
•Disciplined, repeatable investment philosophy and
process
•Proprietary investment analysis
Chandler Asset Management Assets as of December 31, 2021.
Assets Under Management
$25.8 Billion
Corporate
<1%
Non Profit
1%
Healthcare
17%
Sub-advisory
1%
Public
81%
3
Lasting Partnerships with Neighbors and Peers
Local Water District, Sanitation District,
and Utilities Clients
Client Name AUM
Orange County Sanitation District $973 M
Coachella Valley Water District $372 M
Rancho California Water District $330 M
Western Municipal Water District $241 M
Elsinore Valley Muni. Water District $205 M
Alameda County Water District $170 M
San Diego County Water Authority $146 M
Moulton Niguel Water District $91 M
Vallecitos Water District $53 M
West Basin Municipal Water District $50 M
San Bernardino Municipal Water Department $42 M
East Orange County Water District $36 M
Walnut Valley Water District $34 M
Neighboring Public Agency Clients
Client Name AUM
Transportation Corridor Agencies $1.4 B
Orange County Sanitation District $973 M
Orange County Transportation Authority $490 M
City of Newport Beach $284 M
City of Brea $94 M
Moulton Niguel Water District $91 M
City of San Clemente $81 M
City of Buena Park $73 M
City of Costa Mesa $63 M
City of Tustin $46 M
City of Fountain Valley $43 M
City of San Juan Capistrano $40 M
East Orange County Water District $36 M
Chandler’s water agency clients and sampleInland Empire area clients as of December 31,2021.Both lists only include clientsthat have given permission tobe listed.It is not known whether the clients
listed approve or disapprove of Chandler Asset Management and the advisory services provided.Includes discretionary and non-discretionary relationships.
4
Our Experienced Team is a Resource for the District
Investment Professionals Responsibility Industry Experience Firm Tenure
Martin Cassell, CFA
CEO Leads the investment team, firm oversight and strategy 1987 1991
William Dennehy II, CFA
Co-Chief Investment Officer
Implements portfolio strategies, performs credit analysis; Co-Chair of Credit Committee
and Economic and Market Analysis Committee 1992 2011
Scott Prickett, CTP
Co-Chief Investment Officer
Implements portfolio strategies, monitors alignment with client objectives; Co-Chair of
Economic and Market Analysis Committee 1987 2014
Jayson Schmitt, CFA
Co-Chief Investment Officer
Implements portfolio strategies, performs credit analysis; Co-Chair of Quantitative
Analysis Committee, Sector Committee and Multi-Asset Class Committee 1994 1995
Dan Delaney, CFA
Senior Portfolio Manager Implements portfolio strategies, performs credit analysis 2006 2021
Genny Lynkiewicz, CFA
Senior Portfolio Manager Implements portfolio strategies, performs credit analysis; Co-Chair of Sector Committee 2000 2015
Ted Piorkowski, CFA
Senior Portfolio Manager Implements portfolio strategies, performs credit analysis 1987 1999
Julie Hughes
Senior Portfolio Strategist
Implements portfolio strategies and monitors alignment with client objectives and
policies 1993 2014
Christopher McCarry, AIF
Senior Portfolio Strategist
Implements portfolio strategies and monitors alignment with client objectives and
policies 2001 2013
Carlos Oblites
Senior Portfolio Strategist
Implements portfolio strategies and monitors alignment with client objectives and
policies; Co-Chair of Multi-Asset Class Committee 1995 2017
Shelly Henbest, CFA
Senior Credit Analyst Research and credit analysis; Co-Chair of Credit Committee 2000 2009
Charlotte Powell
Associate Portfolio Manager Assists with implementation of portfolio strategies 2020 2021
Client Service and Operations Responsibility Industry Experience Firm Tenure
Nicole Dragoo, JD, IACCP
President Leads the firm’s administration, compliance, operations, and human resources.2000 2001
Don Penner
Director of National Accounts Client Service and Relationship Management 2001 2010
Ryan Tauber
Managing Director, Business Development Leads the marketing and relationship management team 1999 2020
Mia Corral Brown
Senior Relationship Manager Client Service and Relationship Management 1997 2004
Kara Raynor-Sanchez
Client Service Director Leads Client Service Team, reporting, onboarding 2012 2012
5
Section 2|SECTION |Section 2 |Economic Update
6
Source: US Department of Labor Source: US Department of Labor
Employment
The January employment report was remarkably strong.US nonfarm payrolls grew by 467,000 in January, well above the consensus forecast of
125,000. Payrolls in the prior two months were revised significantly higher and on a trailing 3-month and 6-month basis, payrolls have
increased an average of 541,000 and 540,000 per month, respectively. The unemployment rate edged slightly higher to 4.0%in January from
3.9%in December as more workers entered the laborforce. The laborparticipation rate increased to 62.2%in January from 61.9%in December
but remains lower than the pre-pandemic level of 63.4%. The employment-population ratio increased to 59.7%in January from 59.5%in
December,but also remains below the pre-pandemiclevel of 61.2%. The U-6underemployment rate, which includes those who are marginally
attached to the laborforce and employed parttime foreconomicreasons, declined to 7.1%in January from 7.3%in December, and is very close
to its pre-pandemic level (7.0%in February 2020). Average hourly earnings rose 0.7% month-over-month and were up 5.7% year-over-year in
January versus 4.9% in December.
-22,000
-18,000
-14,000
-10,000
-6,000
-2,000
2,000
6,000
MO
M
C
h
a
n
g
e
I
n
(
0
0
0
'
s
)
Nonfarm Payroll (000's)
Non-farm Payroll (000's)
3 month average (000's)
0.0%
4.0%
8.0%
12.0%
16.0%
20.0%
24.0%
Unemployment Rate
Underemployment Rate (U6)
Unemployment Rate (U3)
Ra
t
e
(
%
)
7
Source: US Department of Labor Source: US Department of Commerce
Inflation
The ConsumerPrice Index (CPI) was up 7.0% year-over-year in December, versus up 6.8% year-over-year in November. Core CPI (CPI less food
and energy) was up 5.5% year-over-year in December, versus up 4.9%in November. Pricing pressures were widespread in December, with
notable gains for used cars and trucks, new vehicles, food, and rent. The Personal Consumption Expenditures (PCE) index was up 5.8% year-
over-year in December,up from 5.7%in November. Core PCE was up 4.9% year-over-year in December, versus up 4.7%in November. Current
inflation readings continue to run well above the Fed’s longer-run target of around 2.0%. While we believe year-over-year inflation may be at
or near a peak, and pricing pressures are likely to abate as we move through the year,we expect inflationary pressures will remain elevated
over the near-term.
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
Personal Consumption Expenditures (PCE)
PCE Price Deflator YOY % Change
PCE Core Deflator YOY % Change
YO
Y
(
%
)
C
h
a
n
g
e
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
Consumer Price Index (CPI)
CPI YOY % Change
Core CPI YOY % Change
YO
Y
(
%
)
C
h
a
n
g
e
8
Market Based Measure of Longer-Term Inflation
Source: Bloomberg
0.50
0.75
1.00
1.25
1.50
1.75
2.00
2.25
2.50
2.75
3.00
3.25
3.50
10 Year Nominal and Break Even Inflation Rates
10y 10y TIP TIP Lower TIP Upper
9
Source: US Department of Commerce Source: US Department of Commerce
-35.0%
-30.0%
-25.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
Gross Domestic Product (GDP)
GDP QOQ % Change
GDP YOY % Change
Gross Domestic Product (GDP)
According to the advance estimate, fourth quarter GDP grew at an annualized rate of 6.9%, versus the consensus forecast of 5.7%. Economic
growth reaccelerated in the fourth quarter after slowing to a pace of 2.3% growth in the third quarter. While third quarter growth was held
back by the outbreak of the Delta variant in the US,we anticipate the recent surge of omicron cases in the US will hamper current quarter
economic growth. The consensus estimate calls for 2.8% GDP growth in the current quarter.
3/21 6/21 9/21 12/21
7.4% 7.9% 1.4% 2.3%
-0.4% -0.7% 2.1% 5.2%
-1.6% -0.2% -1.3% 0.0%
0.8% -0.4% -0.4% -0.3%
0.0% 0.0% 0.5% -0.2%
6.3% 6.7% 2.3% 6.9%
Components of GDP
Federal Government Expenditures
State and Local (Consumption and Gross
Investment)
Net Exports and Imports
Total
Gross Private Domestic Investment
Personal Consumption Expenditures
10
Source: Bloomberg Source: Bloomberg
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
US Treasury Yield Curve
Jan-22
Oct-21
Jan-21
Yi
e
l
d
(
%
)
Bond Yields
At the end of January, the 2-year Treasury yield was about 107 basis points higher, and the 10-Year Treasury yield was about 71 basis points
higher, year-over-year. The spread between the 2-year Treasury yield and 10-year Treasury yield was 60 basis points at January month-end
compared to the average historical spread (since 2003) of about 130 basis points.
11
Rising Interest Rates Impact on Total Return
Source: Bloomberg
Benchmark Yields 12/31/19 12/31/20 03/31/21 06/30/21 09/30/21 12/31/21 01/31/22
Fed IOER 1.55 0.10 0.10 0.15 0.15 0.15 0.15
2 year 1.57 0.12 0.16 0.25 0.28 0.73 1.18
3 year 1.61 0.17 0.35 0.46 0.51 0.96 1.38
5 year 1.69 0.36 0.94 0.89 0.97 1.26 1.61
OC San Liquidity 3 mo 12 mo 2 yrs 3 yrs 5 yrs
Portfolio 0.00%0.08%0.47%1.12%1.23%
Benchmark*0.01%0.05%0.36%0.99%1.14%
+/--0.01%0.03%0.11%0.13%0.09%
*ICE BofA 3-Month US Treasury Bill Index
OC San Long Term 3 mo 12 mo 2 yrs 3 yrs 5 yrs
Portfolio -0.63%-0.92%1.70%2.67%2.14%
Benchmark*-0.69%-1.00%1.68%2.65%2.09%
+/-0.06%0.08%0.02%0.02%0.05%
*ICE BofA 1-5 Yr AAA-A US Corp & Govt Index
Total Returns as of 12/31/21
12
SECTION |Section 3 |Account Profile
13
Portfolio Characteristics
Orange County Sanitation District Liquid
12/31/2021 9/30/2021
Benchmark*Portfolio Portfolio
Average Maturity (yrs)0.16 0.27 0.45
Average Modified Duration 0.15 0.27 0.45
Average Purchase Yield n/a 0.11%0.08%
Average Market Yield 0.03%0.18%0.09%
Average Quality**AAA AA+/Aaa AA+/Aaa
Total Market Value 230,856,942 129,858,408
*ICE BofA 3-Month US Treasury Bill Index
**Benchmark is a blended rating of S&P, Moody’s, and Fitch. Portfolio is S&P and Moody’s respectively.
As of December 31, 2021
14
Orange County Sanitation District Liquid
Sector Distribution
Commercial
Paper
2.6%
Corporate
3.5%
Money Market
Fund
3.5%
Negotiable CD
4.8%
US Treasury
85.6%
December 31, 2021 September 30, 2021
Commercial
Paper
6.2%Corporate
6.3%
Money Market
Fund
0.0%
Negotiable CD
8.5%
US Treasury
79.0%
As of December 31, 2021
15
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
0 - 0.25 0.25 - 0.50 0.50 - 1 1 - 1.5 1.5 - 2 2 - 2.5 2.5 - 3 3+
Orange County Sanitation District Liquid ICE BofA 3-Month US Treasury Bill Index
Portfolio Compared to the Benchmark as of December 31, 2021
0 -0.25 0.25 -0.50 0.50 -1 1 -1.5 1.5 -2 2 -2.5 2.5 -3 3+
Portfolio 48.2% 38.8% 13.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Benchmark*100.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
*ICE BofA 3-Month US Treasury Bill Index
Duration Distribution
Orange County Sanitation District Liquid
As of December 31, 2021
16
0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
1.20%
1.40%
12 months 2 years 3 years 5 years 10 years Since Inception
Orange County Sanitation District Liquid ICE BofA 3-Month US Treasury Bill Index
Total Rate of Return Annualized Since Inception 11/30/2014
Annualized
TOTAL RATE OF RETURN 3 months 12 months 2 years 3 years 5 years 10 years Since
Inception
Orange County Sanitation District Liquid 0.00%0.08%0.47%1.12%1.23%N/A 0.97%
ICE BofA 3-Month US Treasury Bill Index 0.01%0.05%0.36%0.99%1.14%N/A 0.86%
Total rate of return:A measure of a portfolio’s performance over time.It is the internal rate of return,which equates the beginning value of the portfolio with the
ending value;it includes interest earnings,realized and unrealized gains and losses in the portfolio.
Investment Performance
Orange County Sanitation District Liquid
As of December 31, 2021
17
Portfolio Characteristics
Orange County Sanitation District Long Term
12/31/2021 9/30/2021
Benchmark*Portfolio Portfolio
Average Maturity (yrs)2.69 2.58 2.78
Average Modified Duration 2.59 2.37 2.54
Average Purchase Yield n/a 1.38%1.45%
Average Market Yield 0.93%0.82%0.50%
Average Quality**AAA AA+/Aa1 AA/Aa1
Total Market Value 742,225,778 686,382,940
*ICE BofA 1-5 Yr AAA-A US Corp & Govt Index
**Benchmark is a blended rating of S&P, Moody’s, and Fitch. Portfolio is S&P and Moody’s respectively.
As of December 31, 2021
18
Orange County Sanitation District Long Term
Sector Distribution
ABS
6.0%
Agency
21.8%
CMO
0.8%
Corporate
22.6%Money Market
Fund
2.0%
Mortgage Pass
Thru
0.1%
Negotiable CD
2.4%
Supranational
9.3%
US Treasury
34.9%
December 31, 2021 September 30, 2021
ABS
6.0%
Agency
24.6%
CMO
0.9%
Corporate
23.6%Money Market
Fund
0.3%
Mortgage Pass
Thru
0.1%
Negotiable CD
2.5%
Supranational
10.2%
US Treasury
31.8%
As of December 31, 2021
19
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
0 - 0.25 0.25 - 0.50 0.50 - 1 1 - 2 2 - 3 3 - 4 4 - 5 5+
Orange County Sanitation District Long Term ICE BofA 1-5 Yr AAA-A US Corp & Govt Index
Portfolio Compared to the Benchmark as of December 31, 2021
0 -0.25 0.25 -0.50 0.50 -1 1 -2 2 -3 3 -4 4 -5 5+
Portfolio 4.4% 4.7% 7.9% 23.4% 25.0% 22.0% 12.7% 0.0%
Benchmark*0.0% 0.0% 1.6% 33.4% 27.8% 20.1% 17.0% 0.0%
*ICE BofA 1-5 Yr AAA-A US Corp & Govt Index
Duration Distribution
Orange County Sanitation District Long Term
As of December 31, 2021
20
-1.50%
-1.00%
-0.50%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
12 months 2 years 3 years 5 years 10 years Since Inception
Orange County Sanitation District Long Term ICE BofA 1-5 Yr AAA-A US Corp & Govt Index
Total Rate of Return Annualized Since Inception 11/30/2014
Annualized
TOTAL RATE OF RETURN 3 months 12 months 2 years 3 years 5 years 10 years Since
Inception
Orange County Sanitation District Long Term -0.63%-0.92%1.70%2.67%2.14%N/A 1.80%
ICE BofA 1-5 Yr AAA-A US Corp & Govt Index -0.69%-1.00%1.68%2.65%2.09%N/A 1.76%
Total rate of return:A measure of a portfolio’s performance over time.It is the internal rate of return,which equates the beginning value of the portfolio with the
ending value;it includes interest earnings,realized and unrealized gains and losses in the portfolio.
Investment Performance
Orange County Sanitation District Long Term
As of December 31, 2021
21
Important Disclosures
2022Chandler Asset Management,Inc,An Independent Registered Investment Adviser.
Information contained herein is confidential.Prices are provided by IDC,an independent pricing source.In the event IDC does not provide a price or if the price provided is not reflective of fair market
value,Chandler will obtain pricing from an alternative approved third party pricing source in accordance with our written valuation policy and procedures.Our valuation procedures are also disclosed in
Item 5 of our Form ADV Part 2A.
Performance results are presented gross-of-advisory fees and represent the client’s Total Return.The deduction of advisory fees lowers performance results.These results include the reinvestment of
dividends and other earnings.Past performance may not be indicative of future results.Therefore,clients should not assume that future performance of any specific investment or investment strategy
will be profitable or equal to past performance levels.All investment strategies have the potential for profit or loss.Economic factors,market conditions or changes in investment strategies,
contributions orwithdrawals may materially alter the performance and results of your portfolio.
Index returns assume reinvestment of all distributions.Historical performance results for investment indexes generally do not reflect the deduction of transaction and/or custodial charges or the
deduction of an investment management fee,the incurrence of which would have the effect of decreasing historical performance results.It is not possible to invest directly in an index.
Source ice Data Indices,LLC ("ICE"),used with permission.ICE permits use of the ICE indices and related data onan "as is"basis;ICE,its affiliates and their respective third party suppliers disclaim any and
all warranties and representations,express and/or implied,including any warranties of merchantability or fitness for a particular purpose or use,including the indices,index data and any data included
in,related to,or derived therefrom.Neither ICE data,its affiliates or their respective third party providers guarantee the quality,adequacy,accuracy,timeliness or completeness of the indices or the
index data or any component thereof,and the indices and index data and all components thereof are provided on an "as is"basis and licensee's use it at licensee's own risk.ICE data,its affiliates and their
respective third party do not sponsor,endorse,or recommend chandler asset management,or any of its products or services.
This report is provided for informational purposes only and should not be construed as a specific investment or legal advice.The information contained herein was obtained from sources believed to be
reliable as of the date of publication,but may become outdated or superseded at any time without notice.Any opinions or views expressed are based on current market conditions and are subject to
change.This report may contain forecasts and forward-looking statements which are inherently limited and should not be relied upon as indicator of future results.Past performance is not indicative of
future results.This report is not intended to constitute an offer,solicitation,recommendation or advice regarding any securities or investment strategy and should not be regarded by recipients as a
substitute for the exercise of their own judgment.
Fixed income investments are subject to interest,credit and market risk.Interest rate risk:the value of fixed income investments will decline as interest rates rise.Credit risk:the possibility that the
borrower may not be able to repay interest and principal.Low rated bonds generally have to pay higher interest rates to attract investors willing to take on greater risk.Market risk:the bond market in
general could decline due to economic conditions,especially during periods of rising interest rates.
Ratings information have been provided by Moody’s,S&P and Fitch through data feeds we believe to be reliable as of the date of this statement,however we cannot guarantee its accuracy.
Security level ratings for U.S.Agency issued mortgage-backed securities (“MBS”)reflect the issuer rating because the securities themselves are not rated.The issuing U.S.Agency guarantees the full and
timely payment of both principal and interest and carries a AA+/Aaa/AAA by S&P,Moody’s and Fitch respectively.
As of December 31, 2021
22
Benchmark Disclosures
ICE BofA 3-Month US Treasury Bill Index
The ICE BofA US 3-Month Treasury Bill Index is comprised of a single issue purchased at the beginning of the month and held for a full month.At the end of the month that issue is sold and rolled into a
newly selected issue.The issue selectedat each month-end rebalancing is the outstanding Treasury Bill thatmatures closest to,but not beyond,three months from the rebalancing date.
ICE BofA 1-5 Yr AAA-A US Corp & Govt Index
The ICE BofA 1-5 Year AAA-A US Corporate &Government Index tracks the performance of US dollar denominated investment grade debt publicly issued in the US domestic market,including US Treasury,
US agency,foreign government,supranational,and corporate securities.Qualifying securities must be rated AAA through A3 (based on an average of Moody’s,S&P and Fitch).In addition,qualifying
securities must have at least one year remaining term to final maturity and less than five years remaining term to final maturity,at least 18 months to final maturity at point of issuance,a fixed coupon
schedule,and a minimum amount outstanding of $1 billion for US Treasuries and $250 million for all othersecurities.
ICE BofA 1-5 Yr US Corp & Govt Index
The ICE BofA 1-5 Year US Corporate &Government Index tracks the performance of US dollar denominated investment grade debt publicly issued in the US domestic market,including US Treasury,US
agency,foreign government,supranational,and corporate securities.Qualifying securities must have an investment grade rating (based on an average of Moody’s,S&P and Fitch).In addition,qualifying
securities must have at least one year remaining term to final maturity and less than five years remaining term to final maturity,at least 18 months to final maturity at point of issuance,a fixed coupon
schedule,and a minimum amount outstanding of $1 billion for US Treasuries and $250 million for all othersecurities.
As of December 31, 2021
23