Investment Strategy & Benchmarks Page Two
The agency employs either a Matched Funding or Total Return Duration Targeted approach for certain categories of accounts. • Of the $997.8 million portfolio at the end of September, $591 million of Match Funded accounts were invested in short-term securities with maturities of less than one year that precede or coincide with projected outflows. (Capital, Operating, Debt Service) • The remaining $407 million is managed for Total Return, representing long-term unrestricted reserves held in the General and M&O Reserve accounts. o Unrestricted reserves are managed for Total Return, with consideration of the volatility/return tradeoff associated with longer-term structures. o Longer duration portfolios benefit from higher average annual returns over multiyear periods and exhibit greater return volatility relative to shorter-term maturity structures. o Management does not attempt to time market rate changes; Duration Targeted portfolios maintain consistent structures. The General account is benchmarked to a composite index of 1-5-year bullet agency indices. Investment maturities are generally staggered from three-months to five-years, with an Effective Duration 1 target of approximately 3.0. The smaller M&O Reserve, representing approximately 5% of assets under management, is benchmarked to a composite of 1–13-year Treasury Strip indices that approximates effective duration of a laddered portfolio of 6-month to 15-year securities. The 7.5-year average maturity structure has an associated Effective Duration of approximately 7.0. The General account strategy has not changed in many years and the smaller M&O Reserve’s recommended strategy has been consistent since 2020. RECOMMENDATION • Approve a continuation of the investment strategies and benchmarks for the current quarter.
1 Effective or Option Adjusted Duration – measure used to determine bond or portfolio price sensitivity to interest rate changes.
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