HomeMy WebLinkAboutItem 6 PPP 02-19-2020 Admin Committee - Investments_ChandlerCHANDLER ASSET MANAGEMENT, INC. | 800.317.4747 | www.chandlerasset.com
INVESTMENT REPORT
Period Ending December 31, 2019
Orange County Sanitation District
SECTION 1 Firm Overview
SECTION 2 Economic Update
SECTION 3 Account Profile
Table of Contents As of December 31, 2018
1
SECTION |Section 1 |Firm Overview
2
Specializing in Investment Management for Public Agencies
Assets Under Management
$19.5 Billion
Independent & Employee-Owned
•Fixed income specialist since 1988
•Founded by public investment professionals
•Serve institutions with public sector focus
•Headquartered in San Diego, CA
Custom Investment Programs
•Investment solutions based on your risk profile and
return goals
•Strategies for operating, short, and long term
reserves
•Direct contact with investment management team
Stable Team of Investment Professionals
•Team of investment professionals average over 21
years portfolio management experience
•Disciplined, repeatable investment philosophy and
process
•Proprietary investment analysis
“We believe if we do what is right for our clients, our own success will follow.”
Chandler Asset Management Assets as of December 31, 2019.
Corporation
<1%
Non Profit
1%
Healthcare
17%
Sub-advised
2%
Public
80%
3
Chandler’s Water, Utilities, and Sanitation District Clients
As of December 31, 2019
Client AUM ($MM)Client AUM ($MM)
Orange County Sanitation District, CA $756 Walnut Valley Water District, CA $34
Coachella Valley Water District, CA $415 Eagle River Water and Sanitation, CO $28
Rancho California Water District, CA $300 East Orange County Water District, CA $21
Elsinore Valley Municipal Water District, CA $216 South Coast Water District, CA $19
Colorado Springs Utilities, CO $213 Mammoth Community Water District, CA $16
San Diego County Water Authority, CA $209 West Valley Water District, CA $13
Western Municipal Water District, CA $168 Temescal Valley Water District, CA $11
Alameda County Water District, CA $161 Plaza Metropolitan Water, CO $7
Moulton Niguel Water District, CA $152 Upper San Gabriel Valley Municipal Water District, CA $5
Tampa Bay Water Authority, FL $130 Donala Water and Sanitation District, CO $4
Eastern Municipal Water District, CA $91 Three Valleys Municipal Water District, CA $4
Vallecitos Water District, CA $51 Wheat Ridge Sanitation District, CO $2
San Bernardino Municipal Water Department, CA $40
Chandler Asset Management’s water,utilities and sanitation district clients listed by assets under management as of 12/31/2019.It is not known whether the listed
clients approve or disapprove of Chandler Asset Management and the advisory services provided.This list includes both discretionary and non-discretionary clients
who have given us permission to list.
Chandler manages over $3 billion in assets under management for water, utilities, and
sanitation districts nationwide, including the following clients:
Significant Experience with Water and Wastewater Districts
4
Orange County Clients
City of Brea
Brea Olinda Unified School District
City of Buena Park
City of Costa Mesa
East Orange County Water District
City of Fountain Valley
City of La Habra
Moulton Niguel Water District
City of Newport Beach
Orange County Sanitation District
Orange County Transportation Authority
City of San Clemente
South Coast Water District
Transportation Corridor Agencies
City of Westminster
A listing of the firm's clients in Orange County, shown in alphabetical order.As of December 31,2019.This list only includes clients that have given permission to be 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.
Lasting Partnerships with Neighbors and Peers
5
Investment Professionals Responsibility Industry Experience Firm Tenure
Martin Cassell, CFA
CEO, Chief Investment Officer Leads the investment team, firm oversight 1987 1991
William Dennehy II, CFA
EVP,Portfolio Manager
Implements portfolio strategies, performs credit analysis; Co-Chair of Credit
Committee and Economic and Market Analysis Committee 1992 2011
Scott Prickett, CTP
EVP, Portfolio Strategist
Implements portfolio strategies, monitors alignment with client objectives;
Co-Chair of Economic and Market Analysis Committee 1987 2014
Jayson Schmitt, CFA
EVP,Portfolio Manager
Implements portfolio strategies, performs credit analysis; Co-Chair of
Quantitative Analysis Committee, Sector Committee, and Multi-Asset Class
Committee
1994 1995
Julie Hughes
SVP, Portfolio Strategist
Implements portfolio strategies and monitors alignment with client objectives
and policies 1993 2014
Christopher McCarry, AIF
SVP, Portfolio Strategist
Implements portfolio strategies and monitors alignment with client objectives and policies 2001 2013
Carlos Oblites
SVP, Portfolio Strategist
Implements portfolio strategies and monitors alignment with client objectives and policies; Co-Chair of Multi-Asset Class Committee 1995 2017
Ted Piorkowski, CFA
SVP, Portfolio Manager Implements portfolio strategies, performs credit analysis 1987 1999
Shelly Henbest, CFA
VP, Credit Analyst Research and credit analysis; Co-Chair of Credit Committee 2000 2009
Genny Lynkiewicz, CFA
VP, Portfolio Manager
Implements portfolio strategies, performs credit analysis, Co-Chair of Sector
Committee 2000 2015
Jeff Probst, CFA
VP, Portfolio Manager
Implements portfolio strategies, performs credit analysis; Co-Chair of
Quantitative Analysis Committee 2010 2012
Devin Weinstein, CFA
Portfolio Management Associate Assists with implementation of portfolio strategies 2015 2018
Client Service and Operations Responsibility Industry Experience Firm Tenure
Nicole Dragoo, IACCP
COO, Chief Compliance Officer
Responsible for regulatory compliance, directly manages investment
operations and oversees firm’s administrative functions 2000 2001
Don Penner
EVP, Director of Business Development Leads the marketing and relationship management team 2001 2010
Kara Raynor-Sanchez
VP, Client Service Director Head of Client service 2012 2012
Jeannie Palmero
VP, Client Service Manager Client service manager 1994 2004
Partnering with the Chandler Team
6
Section 2|SECTION |Section 2 |Economic Update
7
Source: US Department of Labor Source: US Department of Labor
Employment
U.S.nonfarm payrolls rose by 225,000 in January,well above expectations of 165,000.Payrolls for November and December were also revised
up by a total of 7,000.On a trailing 3-month and 6-month basis,payrolls increased an average of 211,000 and 206,000 per month,respectively.
The unemployment rate ticked up to 3.6%from 3.5%in the prior month as the participation rate rose to 63.4%from 63.2%.A broader measure
of unemployment called the U-6,which includes those who are marginally attached to the labor force and employed part time for economic
reasons,also increased to 6.9%in January from 6.7%in December.Wages edged up 0.2%in January.On a year-over-year basis,wages were up
3.1% in January, versus up 3.0% in December. The average workweek was unchanged at 34.3 hours.
0
50
100
150
200
250
300
350
400
450
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)
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
Unemployment Rate
Underemployment Rate (U6)
Unemployment Rate (U3)
Ra
t
e
(
%
)
8
Source: US Department of Labor Source: US Department of Commerce
Inflation
The Consumer Price Index (CPI)was up 2.3%year-over-year in December,up from 2.1%in November.Core CPI (CPI less food and energy)was
up 2.3%year-over-year in December,unchanged from November.The Personal Consumption Expenditures (PCE)index was up 1.6%year-over-
year in December versus up 1.4%year-over-year in November.Core PCE,which is the Fed's primary inflation gauge,was also up 1.6%year-over-
year in December versus 1.5% year-over-year in November. Nevertheless, Core PCE remains below the Fed’s 2.0% inflation target.
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
Personal Consumption Expenditures (PCE)
PCE Price Deflator YOY % Change
PCE Core Deflator YOY % Change
YO
Y
(
%
)
C
h
a
n
g
e
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
Consumer Price Index (CPI)
CPI YOY % Change
Core CPI YOY % Change
YO
Y
(
%
)
C
h
a
n
g
e
9
Inflation
Source: Bloomberg
1.00
1.50
2.00
2.50
3.00
3.50
01
/
0
1
/
0
1
08
/
0
1
/
0
1
03
/
0
1
/
0
2
10
/
0
1
/
0
2
05
/
0
1
/
0
3
12
/
0
1
/
0
3
07
/
0
1
/
0
4
02
/
0
1
/
0
5
09
/
0
1
/
0
5
04
/
0
1
/
0
6
11
/
0
1
/
0
6
06
/
0
1
/
0
7
01
/
0
1
/
0
8
08
/
0
1
/
0
8
03
/
0
1
/
0
9
10
/
0
1
/
0
9
05
/
0
1
/
1
0
12
/
0
1
/
1
0
07
/
0
1
/
1
1
02
/
0
1
/
1
2
09
/
0
1
/
1
2
04
/
0
1
/
1
3
11
/
0
1
/
1
3
06
/
0
1
/
1
4
01
/
0
1
/
1
5
08
/
0
1
/
1
5
03
/
0
1
/
1
6
10
/
0
1
/
1
6
05
/
0
1
/
1
7
12
/
0
1
/
1
7
07
/
0
1
/
1
8
02
/
0
1
/
1
9
09
/
0
1
/
1
9
Market Based Measures of Inflation
10y TIP Fed5Year Lower Upper
10
Source: US Department of Commerce Source: US Department of Commerce
3/19 6/19 9/19 12/19
0.8% 3.0% 2.1% 1.2%
1.1% -1.2% -0.2% -1.1%
0.7% -0.7% -0.1% 1.5%
0.1% 0.5% 0.2% 0.2%
0.4% 0.3% 0.1% 0.2%
3.1% 2.0% 2.1% 2.1%Total
Components of GDP
Net Exports and Imports
Personal Consumption
Expenditures
Gross Private Domestic
Investment
Federal Government
Expenditures
State and Local (Consumption and
Gross Investment)0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
Gross Domestic Product (GDP)
GDP QOQ % Change
GDP YOY % Change
Gross Domestic Product (GDP)
According to the advance estimate,fourth quarter 2019 GDP grew at a 2.1%annualized rate,in line with expectations.This follows growth of
2.1%in the third quarter,2.0%in the second quarter,and 3.1%in the first quarter.Overall,GDP grew 2.3%in 2019,down from 2.9%in 2018.
Fourth quarter growth was fueled by net exports and consumer spending which contributed 1.5%and 1.2%to GDP in the quarter,respectively,
while gross private domestic investment was a drag on the economy.The consensus estimate for current quarter growth signals a slowdown to
1.6% growth. The consensus forecast calls for GDP growth of 1.8% for the full year 2020.
11
Source: Bloomberg Source: Bloomberg
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
US Treasury Note Yields
2-Year 5-Year 10-Year
Yi
e
l
d
(
%
)
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
US Treasury Yield Curve
Jan-20
Oct-19
Jan-19
Yi
e
l
d
(
%
)
Bond Yields
At January month-end,Treasury yields were much lower on a year-over-year basis.The 3-month T-bill yield was down 85 basis points,the 2-
Year Treasury yield was down 114 basis points,and the 10-Year Treasury yield was down 112 basis points,year-over-year.We believe the
decline in long-term Treasury yieldslargely reflects a decline in global economic growth and inflation expectations,while the decline in shorter-
term rates is roughly in line with the Fed's three 25 basis point rate cuts in 2019.
12
SECTION |Section 3 |Account Profile
13
Objectives
Chandler Asset Management Performance Objective
Liquid Operating Monies –will be compared to the 3-month T-Bill rate and operate with a maximum
maturity of one year.
Long-Term Operating Monies –will be compared to the ICE BAML 1-5 Year Corporate Government Rated
AAA – A Index.
Investment Objectives
The investment objectives of the Orange County Sanitation District are first,to provide safety of principal
to ensure the preservation of capital in the overall portfolio;second,to provide sufficient liquidity to meet
all operating requirements;and third,to earn a commensurate rate of return consistent with the
constraints imposed by the safety and liquidity objectives.
Strategy
In order to achieve these objectives,the portfolio invests in high quality fixed income securities consistent
with the investment policy and California Government Code.
As of December 31, 2019
14
Compliance As of December 31, 2019
The Orange County Sanitation District’s Investment Policy is consistent with California Government Code.
Category Standard Comment
Treasury Issues 5 years maxmaturity; Minimum allocation of 10%Complies*
U.S. Agencies 20% max issuer; 5 years max maturity Complies
Supranational "AA" rated or better by a NRSRO; 30% maximum; 5 years max maturity; USD denominated senior unsecured unsubordinated
obligations issued or unconditionally guaranteed by IBRD, IFC, or IADB Complies
Corporate (MTNs)"A" rated or better long term debt by a NRSRO; 30% maximum; 5% max issuer; 5 years max maturity; Issued by corporations
organized and operating within the U.S. or issued by depository institutions licensed by the U.S.Complies
Municipal Securities "A" rated or higher by a NRSRO; 10% maximum; 5% max issuer; 5 years max maturity Complies
Asset Backed/ CMOs/ Mortgage-backed "AA" rated or better by a NRSRO; "A" or higher issuer rating by a NRSRO; 20% maximum; 5% max issuer (excluding govt
agency/mbs); 5 years max maturity Complies*
Negotiable CDs "A" rated or better long term debt by a NRSRO; or "A-1"/ highest short term rating by a NRSRO; 30% maximum; 5% max issuer; 5
years max maturity Complies
Certificates of Deposit 5% max issuer; 5 years max maturity; Secured/ collateralized Complies
Banker’s Acceptances A-1 rated or equivalent short term rating by a NRSRO; 40% maximum; 5% max issuer; 180 days max maturity Complies
Commercial Paper A-1 rated or equivalent short term rating by a NRSRO; "A" or better long term debt issuer by a NRSRO; Issued by a domestic
corporation organized and operating in the US with AUM > $500million; 25% maximum; 5% max issuer; 270 days max maturity Complies
Mutual Fund & Money Market Mutual
Fund
Highest rating or "AAA" rated by two NRSROs; SEC registered adviser with AUM >$500 million and experience greater than 5 years;
10% per one Mutual Fund; 20% max per issuer on Money Market Mutual Funds; 20% max of the District's surplus money Complies
Repurchase Agreements 102% collateralization Complies
Reverse Repurchase Agreements 5% maximum, 90 days max maturity Complies
LAIF Not used by investment adviser Complies
OCIP Not used by investment adviser Complies
Avg Duration Not to exceed 60 months - (80% to 120% of the benchmark)Complies
Max Per Issuer 5% of portfolio (except Supranationals, U.S. Government, Agencies, Mutual Fund)Complies
Maximum Maturity 5 years maximum maturity Complies*
Orange County Sanitation District Long Term
Assets managed by Chandler Asset Management are in full compliance with state law and with the investment policy
*The portfolio has twenty (20) securities with maturities greater than 5 years including four (4) CMOs and sixteen (16) MBS. All securities were inherited from the previous manager and complied
at time of purchase.
15
Portfolio Characteristics
Orange County Sanitation District Long Term
12/31/2019 9/30/2019
Benchmark*Portfolio Portfolio
Average Maturity (yrs)2.67 2.74 2.82
Average Modified Duration 2.53 2.41 2.46
Average Purchase Yield n/a 2.30%2.36%
Average Market Yield 1.71%1.72%1.79%
Average Quality**AAA AA/Aa1 AA/Aa1
Total Market Value 579,895,190 548,112,320
*ICE BAML 1-5 Yr US Corp/Govt Rated AAA-A Index
**Benchmark is a blended rating of S&P, Moody’s, and Fitch. Portfolio is S&P and Moody’s respectively.
Several securities were purchased across the Treasury, Certificate of Deposit, Commercial Paper, and Asset Backed
sectors of the market to keep the portfolio structure in-line with Chandler targets. The purchased securities ranged in
maturity from January 2020 to November 2024. One security was sold and several matured to help facilitate the new
holdings in the portfolio and manage the varied cash flows in the portfolio during the reporting period that totaled a net
positive $29 million.
As of December 31, 2019
16
Orange County Sanitation District Long Term
Sector Distribution
ABS
7.8%
Agency
22.8%
CMO
0.2%
Commercial
Paper
1.7%Foreign
Corporate
3.4%
Money Market
Fund FI
1.0%Mortgage Pass
Thru
0.2%
Municipal Bonds
0.3%
Supranational
5.8%
US Corporate
20.7%
US Treasury
34.8%
Negotiable CD
1.4%
December 31, 2019 September 30, 2019
ABS
8.5%
Agency
25.6%
CMO
0.3%
Commercial
Paper
2.1%Foreign
Corporate
3.6%
Money Market
Fund FI
0.7%
Mortgage Pass
Thru
0.2%
Municipal Bonds
0.8%
Supranational
6.1%
US Corporate
21.8%
US Treasury
30.4%
As of December 31, 2019
The sector allocation was relatively stable. Some of the larger changes include the 4.4% increase in the US Treasury
allocation, to 34.8% of the portfolio, partially offset by the 2.8% decline in the Agency allocation, to 22.8% of the portfolio.
17
Issue Name Investment Type % Portfolio
Government of United States US Treasury 34.78%
Federal Home Loan Bank Agency 9.55%
Federal National Mortgage Association Agency 8.39%Federal Home Loan Mortgage Corp Agency 3.97%Inter-American Dev Bank Supranational 3.05%
Honda ABS ABS 2.57%
John Deere ABS ABS 2.02%
Intl Bank Recon and Development Supranational 1.75%MUFG Bank Ltd/NY Commercial Paper 1.71%Nissan ABS ABS 1.62%
Toronto Dominion Holdings Foreign Corporate 1.45%
Wells Fargo Corp US Corporate 1.41%
Bank of Montreal Chicago Negotiable CD 1.38%JP Morgan Chase & Co US Corporate 1.34%Apple Inc US Corporate 1.24%
Bank of America Corp US Corporate 1.21%
Charles Schwab Corp/The US Corporate 1.20%
Berkshire Hathaway US Corporate 1.16%Royal Bank of Canada Foreign Corporate 1.15%Chubb Corporation US Corporate 1.10%
PNC Financial Services Group US Corporate 1.08%
American Express ABS ABS 1.08%
ChevronTexaco Corp US Corporate 1.06%First American Govt Obligation Fund Class-Z Money Market Fund FI 1.04%IBM Corp US Corporate 1.02%
International Finance Corp Supranational 0.95%
Intel Corp US Corporate 0.90%
US Bancorp US Corporate 0.89%Bank of New York US Corporate 0.89%Federal Farm Credit Bank Agency 0.87%
Qualcomm Inc US Corporate 0.87%
HSBC Holdings PLC Foreign Corporate 0.79%
Honda Motor Corporation US Corporate 0.73%Wal-Mart Stores US Corporate 0.70%General Dynamics Corp US Corporate 0.56%
Microsoft US Corporate 0.53%
Exxon Mobil Corp US Corporate 0.52%
Oracle Corp US Corporate 0.52%
Issuers
Orange County Sanitation District Long Term –Account #10268
As of December 31, 2019
18
Issue Name Investment Type % Portfolio
Morgan Stanley US Corporate 0.52%
Toyota ABS ABS 0.48%
HSBC Holdings PLC US Corporate 0.43%Merck & Company US Corporate 0.36%New York City Transitional Finance Authority Municipal Bonds 0.25%
Deere & Company US Corporate 0.23%
BlackRock Inc/New York US Corporate 0.19%
Federal National Mortgage Association Mortgage Pass Thru 0.18%Federal Home Loan Mortgage Corp CMO 0.14%University of California Municipal Bonds 0.07%
Federal National Mortgage Association CMO 0.03%
GNMA Mortgage Pass Thru 0.02%
AMRESCO Residental Securities Corp CMO 0.02%SLM Corp ABS 0.00%Small Business Administration ABS 0.00%
Federal Home Loan Mortgage Corp Mortgage Pass Thru 0.00%
TOTAL 100.00%
Issuers
Orange County Sanitation District Long Term –Account #10268
As of December 31, 2019
19
AAA AA A <A NR
12/31/19 9.0%68.2%16.0%0.5%6.3%
09/30/19 8.9%66.5%16.9%0.5%7.2%
Source: S&P Ratings
December 31, 2019 vs. September 30, 2019
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
AAA AA A <A NR
12/31/2019 9/30/2019
Quality Distribution
Orange County Sanitation District Long Term
As of December 31, 2019
20
AAA AA A <A NR
12/31/2019 75.4%6.1%17.2%0.0%1.3%
09/30/2019 73.3%6.9%18.2%0.0%1.6%
Source: Moody’s Ratings
December 31, 2019 vs. September 30, 2019
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
AAA AA A <A NR
12/31/2019 9/30/2019
Quality Distribution
Orange County Sanitation District Long Term
As of December 31, 2019
21
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 BAML 1-5 Yr US Corp/Govt Rated AAA-A Index
Portfolio Compared to the Benchmark as of December 31, 2019
0 -0.25 0.25 -0.50 0.50 - 1 1 - 2 2 - 3 3 - 4 4 - 5 5+
Portfolio 4.9% 7.9% 8.2% 19.2% 21.8% 22.9% 15.1% 0.0%
Benchmark*0.3% 0.1% 1.8% 34.6% 28.7% 21.2% 13.5% 0.0%
*ICE BAML 1-5 Yr US Corp/Govt Rated AAA-A Index
Duration Distribution
Orange County Sanitation District Long Term
As of December 31, 2019
The duration of the portfolio contracted moderately, ending the quarter at 2.41 compared to 2.46 as of September 30, 2019. The
Chandler team will be focusing on keeping the duration of the portfolio in a tight band relative to the benchmark in the coming quarter.
22
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
5.00%
12 months 2 years 3 years 5 years 10 years Since Inception
Orange County Sanitation District Long Term ICE BAML 1-5 Yr US Corp/Govt Rated AAA-A 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 0.49%4.65%3.07%2.43%1.92%N/A 1.84%
ICE BAML 1-5 Yr US Corp/Govt Rated AAA-A Index 0.44%4.61%3.04%2.36%1.89%N/A 1.79%
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 theendingvalue;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, 2019
23
Compliance As of December 31, 2019
Category Standard Comment
Treasury Issues 1 year max maturity; Minimum allocation of 10%Complies
U.S. Agencies 20% max issuer; 1 year max maturity Complies
Supranational "AA" rated or better by a NRSRO; 30% maximum; 1 year max maturity; USD denominated senior unsecured unsubordinated
obligations issued or unconditionally guaranteed by IBRD, IFC, or IADB Complies
Corporate (MTNs)"A" rated or better long term debt by a NRSRO; 30% maximum; 5% max issuer; 1 year max maturity; Issued by corporations
organized and operating within the U.S. or issued by depository institutions licensed by the U.S.Complies
Asset Backed/ CMOs "AA" rated or better by a NRSRO; "A" or higher issuer rating by a NRSRO; 20% maximum; 5% max issuer; 1 year max maturity Complies
Negotiable CDs "A" rated or better long term debt by a NRSRO; or "A-1"/ highest short term rating by a NRSRO; 30% maximum; 5% max issuer; 1
year max maturity Complies
Certificates of Deposit 5% max issuer; 1 year max maturity; Secured/collateralized Complies
Banker’s Acceptances A-1 rated or equivalent short term rating by a NRSRO; 40% maximum; 5% max issuer; 180 days max maturity Complies
Commercial Paper A-1 rated or equivalent short term rating by a NRSRO; "A" or better long term debt issuer by a NRSRO; Issued by a domestic
corporation organized and operating in the US with AUM > $500million; 25% maximum; 5% max issuer; 270 days max maturity Complies
Mutual Fund & Money Market Mutual
Fund
Highest rating or "AAA" rated by two NRSROs; SEC registered adviser with AUM >$500 million and experience greater than 5
years; 10% per one Mutual Fund; 20% max per issuer on Money Market Mutual Funds; 20% max of the District's surplus money Complies
Repurchase Agreements 102% collateralization Complies
Reverse Repurchase Agreements 5% maximum, 90 days max maturity Complies
LAIF Not used by investment adviser Complies
OCIP Not used by investment adviser Complies
Prohibited Municipal Securities Complies
Prohibited Mortgage Securities Complies
Avg Duration Not to exceed 180 days; Max duration of 1/2 year Complies
Max Per Issuer 5% of portfolio (except Supranationals, U.S. Government, Agencies, Mutual Fund)Complies
Maximum Maturity 1 year maximum maturity Complies
Orange County Sanitation District Liquid
Assets managed by Chandler Asset Management are in full compliance with state law and with the investment policy
The Orange County Sanitation District’s Investment Policy is consistent with California Government Code.
24
Portfolio Characteristics
Orange County Sanitation District Liquid
12/31/2019 9/30/2019
Benchmark*Portfolio Portfolio
Average Maturity (yrs)0.16 0.21 0.31
Average Modified Duration 0.16 0.21 0.30
Average Purchase Yield n/a 1.82%2.26%
Average Market Yield 1.50%1.68%2.01%
Average Quality**AAA AA+/Aaa AA+/Aa1
Total Market Value 175,617,185 68,219,230
*ICE BAML 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.
Multiple securities were purchased across the Treasury, Agency, Certificate of Deposit, Commercial Paper and Corporate sectors
of the market to keep the portfolio fully invested in the liquidity strategy. The purchased securities ranged in maturity from
January 2020 to August 2020. One security was called and several matured; a net $107mm was contributed to the portfolio
during the quarter.
As of December 31, 2019
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Orange County Sanitation District Liquid
Sector Distribution
Commercial
Paper
2.5%Money Market
Fund FI
3.0%
Negotiable CD
2.3%
US Corporate
6.6%
US Treasury
78.3%
Agency
6.1%
Foreign
Corporate
1.1%
December 31, 2019 September 30, 2019
Commercial
Paper
5.6%Money Market
Fund FI
2.6%
Negotiable CD
5.7%
US Corporate
17.0%
US Treasury
69.2%
As of December 31, 2019
The sector allocation evolved with the large contribution into the strategy in late December. Due to the timing of the contribution
most of the proceeds were allocated to the Treasury sector, with the Chandler team having several maturities in January 2020 to
facilitate additional holdings in non-Treasury securities when the market is more liquid and not under year-end constraints.
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Issue Name Investment Type % Portfolio
Government of United States US Treasury 78.35%
Federal Home Loan Bank Agency 6.09%
First American Govt Obligation Fund Class-Z Money Market Fund FI 3.00%HSBC Holdings PLC US Corporate 1.44%Toronto Dominion Holdings Negotiable CD 1.15%
Bank of New York US Corporate 1.15%
General Dynamics Corp US Corporate 1.15%
Royal Bank of Canada Foreign Corporate 1.15%Bank of America Corp US Corporate 1.14%Qualcomm Inc US Corporate 1.14%
Bank of Montreal Chicago Negotiable CD 1.14%
Toyota Motor Corp Commercial Paper 1.14%
MUFG Bank Ltd/NY Commercial Paper 0.77%Paccar Financial Commercial Paper 0.63%Wells Fargo Corp US Corporate 0.57%
TOTAL 100.00%
Issuers
Orange County Sanitation District Liquid –Account #10282
As of December 31, 2019
27
AAA AA A <A NR
12/31/19 36.1%57.3%6.6%0.0%0.0%
09/30/19 24.0%59.0%17.0%0.0%0.0%
Source: S&P Ratings
December 31, 2019 vs. September 30, 2019
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
AAA AA A <A NR
12/31/2019 9/30/2019
Quality Distribution
Orange County Sanitation District Liquid
As of December 31, 2019
28
AAA AA A <A NR
12/31/2019 92.3%1.1%6.6%0.0%0.0%
09/30/2019 83.0%0.7%16.3%0.0%0.0%
Source: Moody’s Ratings
December 31, 2019 vs. September 30, 2019
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
AAA AA A <A NR
12/31/2019 9/30/2019
Quality Distribution
Orange County Sanitation District Liquid
As of December 31, 2019
29
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 BAML 3-Month US Treasury Bill Index
Portfolio Compared to the Benchmark as of December 31, 2019
0 -0.25 0.25 -0.50 0.50 - 1 1 -1.5 1.5 - 2 2 -2.5 2.5 - 3 3+
Portfolio 72.3% 16.2% 11.5% 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 BAML 3-Month US Treasury Bill Index
Duration Distribution
Orange County Sanitation District Liquid
As of December 31, 2019
The duration of the portfolio contracted moderately, currently 0.21 compared to 0.30 at the end of the prior quarter. The Chandler
team continues to utilize the Treasury and Agency sectors to immunize the large forecasted liquidity needs and overlay spread
product (i.e. Commercial Paper, Certificates of Deposit, and Corporates) to enhance the total return strategy of the portfolio.
30
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 Liquid ICE BAML 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 0.50%2.43%2.17%1.74%1.18%N/A 1.17%
ICE BAML 3-Month US Treasury Bill Index 0.46%2.28%2.08%1.67%1.07%N/A 1.06%
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 theendingvalue;it includes interest earnings,realized and unrealized gains and losses in the portfolio.
Investment Performance
Orange County Sanitation District Liquid
As of December 31, 2019
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Important Disclosures
2018Chandler 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 marketvalue,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 inItem5ofourFormADVPart2A.
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 thedeductionofaninvestmentmanagementfee,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 on an "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 theindex 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 theirrespectivethird party do not sponsor,endorse,or recommend chandler asset management,or any of its products orservices.
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 asubstitutefortheexerciseoftheirownjudgment.
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 andtimelypaymentofboth principal and interest and carries a AA+/Aaa/AAA by S&P,Moody’s and Fitch respectively.
As of December 31, 2019
32
Benchmark Disclosures
ICE BAML 3-Month US Treasury Bill Index
The ICE BAML 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 anewlyselectedissue.The issue selected at each month-end rebalancing is the outstanding Treasury Bill that matures closest to,but not beyond,three months from the rebalancing date.(Index: G0O1.Pleasevisit www.mlindex.ml.com for more information)
ICE BAML 1-5 Yr US Corp/Govt Rated AAA-A Index
The ICE BAML US Issuers 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 issued from US issuers and be rated AAA through A3 (based on an average of Moody’s,S&PandFitch).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 atpointofissuance,a fixed coupon schedule and a minimum amount outstanding of $1 billion for US Treasuries and $250 million for all other securities.(Index:BV10.Please visit www.mlindex.ml.com for
more information)
ICE BAML US 1-5 Yr US Corp/Govt Rated AAA-BBB Indx
The ICE BAML 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,USagency,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, qualifyingsecuritiesmusthave 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
scheduleand a minimum amount outstanding of $1 billion for US Treasuriesand$250million for all other securities.(Index:BVA0.Please visit www.mlindex.ml.com for more information)
As of December 31, 2019
33