Glendale’s investment portfolio ended the second fiscal quarter at $396 million, down $2 million from the end of the previous quarter, according to the latest report.
The portfolio’s slip is driven by historically low interest rates, which have factored heavily into the investment portfolio’s downward slide.
“It is remarkable that after three years of historically low interest rates, rates have yet to improve, and it’s even more remarkable that these rates continue to fall,” City Treasurer Ron Borucki told the City Council on Tuesday.
The Federal Reserve is keeping interest rates low to jumpstart the housing sector, Borucki said. Low interest rates mean low mortgage rates, which could encourage home buying.
“In the eyes of the Fed, the economy needs a lot more help,” Borucki said.
But that aid is knocking the wind out of the city’s investments.
“It works against a fixed-income portfolio and that’s what we manage,” Borucki said, noting the city focuses on bonds investments.
While much of the city’s portfolio is made up of government bonds, there also are some corporate holdings, such as Toyota and General Electric. Government bonds are typically less risky, and typically have smaller returns, than their corporate counterparts.
When Borucki presented his November report at the end of the first fiscal quarter, which saw an $11-million dip to $398 million, council members asked if the ratio of government bonds to corporate holdings could be tweaked.
City policy caps corporate bonds at $15 million. Recently, Borucki increased the city’s stake in Toyota, bringing the corporate bond total to approximately $7 million. However, he said the average return on the corporate bonds is “awful.”
“That’s the reality of the marketplace,” Borucki said.
The city’s portfolio value may be sliding, but it’s not as low as a state pool that many municipalities and local agencies use. The city’s portfolio saw a seven-basis point drop in its rate of return to 1.12%, while the Local Agency Investment Fund saw its rate of return average .38% for the second fiscal quarter, according to a city report.